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Investing.com – Morgan Stanley upgraded its outlook on consumer finance stocks to “attractive” given strong fundamentals and a positive regulatory environment.
The main drivers include lower inflation, lower unemployment, and stable lending rates. Crime, which fell sharply in 2024, is expected to decline further in 2025. EPS growth for the sector is estimated at 15%, marking the fastest pace in four years.
The trade highlighted the light regulatory pressure under the GOP-controlled government. Morgan Stanley (NYSE: ) predicts that the CFPB’s latest fee rule may not pass, increasing earnings for companies like Synchrony Financial (NYSE: ) and Bread Financial.
Morgan Stanley upgraded Synchrony to “overweight” from “underweight,” raising the stock’s price target to $82 from $40.
Although Bread Financial was upgraded to “overweight” from “underweight,” it takes the target up to $76 from $35, adding that late fees are about 20-25% of BFH tax.
The recent performance of $8 would have represented the first earnings of the stock without the losses. However, the low probability of regime survival at this point rebalances the bull-bear skew for 2025 and beyond.
An MS analyst says they now expect the late fees law to come back or fail in the courts. The law has been held up in the courts for 9 months now, and has faced a series of higher courts than the courts, including the Fifth Circuit and the Supreme Court.
However, loan growth remains a concern. Consumer credit is slowing, and credit card credit growth is expected to stabilize at 3%-4% in mid-2025.
The message highlighted potential risks, including higher rates and uncertainty about credit quality improvements. However, analysts remain optimistic about the beneficiaries of the tax cuts and firms with EPS catalysts next year.
