Investing.com – Morgan Stanley raised its view on consumer finance stocks to “attractive” given positive fundamentals and a friendlier regulatory environment.
Key drivers include easing inflation, low unemployment, and stable lending standards. Delinquencies, which slowed significantly in 2024, are expected to decline further in 2025. EPS growth for the sector is expected to reach 15%, representing the fastest pace in four years.
The mediation highlighted light regulatory pressures under a Republican-controlled government. Morgan Stanley (NYSE:) expects 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 to “overweight” from “underweight,” raising their price target on the stock to $82 from $40.
While Bread Financial was upgraded to 'overweight' from 'underweight', raising the target to $76 from $35, adding that late fees amount to around 20-25% of Bread Financial Harbor's revenue.
Applying the $8 late fee cap would have represented a material forward gain without compensation. However, the lower probability of the base remaining at this point rebalances the bullish bias for 2025 and beyond.
The MS analyst said they now expect the late fee rule to be rolled back or failed to be overridden before the courts. The rule has been stuck in the courts for nine months now, and faces significant hurdles to getting past conservative-dominated courts, including the Fifth Circuit and the Supreme Court.
However, loan growth remains a concern. Consumer lending is slowing, and card loan growth is expected to stabilize at 3% to 4% by mid-2025.
The note noted potential risks, including higher valuations and uncertainty about credit quality improvements. However, analysts remain optimistic about the beneficiaries of deregulation and companies with EPS catalysts in the coming year.
