Investing.com — Morgan Stanley upgraded its view on consumer finance stocks to “attractive” based on strong fundamentals and a more friendly regulatory environment.
Key factors include easing inflation, falling unemployment and stable lending standards. Delinquencies slowed significantly in 2024 and are expected to fall further in 2025. EPS growth for the segment is expected to be 15%, the fastest pace in four years.
The mediation emphasized reduced regulatory pressures under a Republican-controlled government. Morgan Stanley (NYSE:) predicts that the CFPB’s proposed late fee rules will not pass, potentially boosting earnings for companies like Synchrony Financial (NYSE:) and Bread Financial .
Morgan Stanley upgraded Synchrony from “underweight” to “overweight” and raised the price target from $40 to $82.
Bread Financial was upgraded from “underweight” to “overweight” and raised its target from $35 to $76, but added that late fees are approximately 20-25% of BFH’s revenue.
Had the $8 late fee cap been in place, it would have taken a huge hit on future revenue without an offset. However, the rule is unlikely to survive at this point, so the bull-bear bias will be rebalanced after 2025.
MS analysts said they now expect the late fee rule to either be struck down or fail to pass the courts. The rule has now been pending in the courts for nine months and faces high hurdles to pass through conservative-majority courts such as the 5th Circuit and the Supreme Court.
However, concerns remain about the increase in lending. Consumer lending is slowing, with card loan growth expected to stabilize at 3-4% by mid-2025.
The memo pointed to potential risks, including rising valuations and uncertainty surrounding improved credit quality. However, analysts remain optimistic about the beneficiaries of next year’s deregulation and the companies with EPS catalysts.
