Investing.com – Morgan Stanley upgraded its outlook on consumer finance stocks to “attractive” on positive fundamentals and a friendlier regulatory environment.
The main drivers are easing inflation, falling unemployment and stable credit standards. Delinquencies, which slowed significantly in 2024, are expected to decline further in 2025. EPS growth for the sector is forecast at 15%, marking the fastest pace in four years.
The brokerage emphasized lighter regulatory pressure under a GOP-controlled government. Morgan Stanley (NYSE: ) predicts that the CFPB’s proposed late fee rule may not pan out, boosting profits for companies like Synchrony Financial (NYSE: ) and Bread Financial.
Morgan Stanley upgraded Synchrony from “overweight” to “underweight,” raising its price target on the stock to $82 from $40.
While Bread Financial upgraded its target to $76 from $35 to “overweight” from “underweight,” it added that late fees are about 20-25% of BFH revenues.
The introduction of the $8 late fee cap represented a material forward gain without compensation. However, the low probability of the rule surviving at this point balances the bull-bear for 2025 and beyond.
The MS analyst said they now expect the late fee rule to either 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 hurdle to clear conservative-dominated courts, including the Fifth Circuit and the Supreme Court.
However, loan growth remains a concern. Consumer lending is slowing, with card loan growth expected to reach 3%-4% by mid-2025.
The note indicates potential risks, including higher valuations and uncertainty regarding credit quality improvements. Still, analysts are optimistic about the deregulation beneficiaries and firms with EPS catalysts next year.