Investing.com — Morgan Stanley upgraded its view on consumer finance stocks to “attractive” given their positive fundamentals and a friendlier regulatory environment.
Key factors include reduced inflation, lower unemployment and stable credit standards. NPLs, which slowed significantly in 2024, are expected to decline further in 2025. EPS growth for the sector is projected to be 15%, marking the fastest pace in four years.
The brokerage highlighted lighter regulatory pressure under a GOP-controlled government. Morgan Stanley (NYSE:) predicts that the CFPB's proposed late fee rule may not pass, boosting earnings for companies like Synchrony Financial (NYSE:) and Bread Financial.
Morgan Stanley upgraded Synchrony from “underweight” to “overweight,” raising the stock's price target to $82 from $40.
While Bread Financial was upgraded to “overweight” from “underweight,” raising the target to $76 from $35, adding that late fees account for about 20-25% of BFH's revenue.
Implementing an $8 cap on late fees would have represented a significant hit to future earnings without offsets. However, the lower probability of rule survival at this time rebalances the bullish bias for 2025 and beyond.
The MS analyst said they now expect the late fee rule to be rolled back or fail to make it through the courts. The rule has been stalled in the courts for nine months and faces a high bar to overcome in conservative-dominated courts, including the Fifth Circuit and the Supreme Court.
However, loan growth remains a concern. Consumer lending is slowing and card lending growth is expected to stabilize at 3% to 4% by mid-2025.
The note noted potential risks, including higher valuations and uncertainty over improvements in credit quality. However, analysts remain optimistic about deregulation beneficiaries and companies with EPS catalysts in the year ahead.
!function(f,b,e,v,n,t,s){if(f.fbq)return;n=f.fbq=function(){n.callMethod? n.callMethod.apply(n,arguments):n.queue.push(arguments)};if(!f._fbq)f._fbq=n;n.push=n;n.loaded=!0;n.version=’2.0′;n.queue=();t=b.createElement(e);t.async=!0;t.src=v;s=b.getElementsByTagName(e)(0);s.parentNode.insertBefore(t,s)}(window, document,’script’,’https://connect.facebook.net/en_US/fbevents.js’);
