Walmart suit ‘adds another leg’ to Capital One bear case, says Morgan Stanley

After Walmart (WMT) filed a lawsuit as it looks to end its existing card relationship with Capital One (COF) before the deal expires, Morgan Stanley analyst Betsy Graseck notes that press reports suggest the pact does not expire until at least 2026, while Capital One disclosed that even if the courts side with Walmart and allow for early program termination, the company would not expect to transfer the existing card portfolio to a new issuer until at least January 2025. However, regardless of the eventual outcome, the firm thinks "the stock will likely price in an eventual Walmart exit" and argues this "adds another leg" to the bear case on Capital One. Capital One disclosed that the Walmart card accounts for 3% of 2022 EPS, but this is likely higher on a forward EPS basis considering how low delinquencies and late fees have been, said the firm, which has an Underweight rating and $85 price target on Capital One shares.