Morgan Stanley Upgrades View on Consumer Finance Stocks to “Attractive”
Morgan Stanley has upgraded its view on consumer finance stocks to “attractive” due to positive fundamentals and a friendlier regulatory environment. The brokerage firm cites easing inflation, lower unemployment, and stable lending standards as key drivers of growth.
The firm expects earnings per share (EPS) growth for the sector to reach 15%, the fastest pace in four years. Morgan Stanley also predicts that delinquencies, which slowed significantly in 2024, will decline further in 2025.
In addition, the firm notes that a Republican-controlled government could lead to lighter regulatory pressure, which could benefit companies like Synchrony Financial and Bread Financial. Morgan Stanley has upgraded Synchrony to “overweight” from “underweight,” with a target price of $82, and has upgraded Bread Financial to “overweight” from “underweight,” with a target price of $76.
The firm’s analysts believe that a proposed late fee rule may not pass, which would be a positive development for companies like Synchrony and Bread, as late fees represent a significant portion of their revenues. However, loan growth remains a concern, with card loan growth expected to stabilize at 3-4% by mid-2025.
Despite potential risks, including higher valuations and uncertainty over credit quality improvements, Morgan Stanley’s analysts remain optimistic about deregulation beneficiaries and firms with EPS catalysts in the next year.
