Morgan Stanley improves consumer finance outlook for 2025 by Investing.com
Investing.com — Morgan Stanley upgraded its outlook on consumer finance stocks to “attractive” given its strong fundamentals and friendly regulatory environment.
Key drivers include lower inflation, lower unemployment, and stable lending standards. Crimes, which decreased significantly in 2024, are expected to decrease further in 2025. EPS growth in the sector is expected to be 15%, marking the fastest pace in four years.
The brokerage highlighted light regulatory pressure under the GOP-controlled government. Morgan Stanley (NYSE:) is predicting that the CFPB’s proposed late fee rule may not pass, raising earnings for companies like Synchrony Financial (NYSE:) and Bread Financial.
Morgan Stanley upgraded Synchrony to “overweight” from “underweight,” raising its price target on the stock to $82 from $40.
While Bread Financial has been upgraded to “overweight” from “underweight,” we take the target to $76 from $35, adding that late fees are about 20-25% of BFH’s revenue.
Implementation of the $8 late fee cap would have represented improved profits without exclusions. However, the low probability of dominance survival at this point rebalances the bull-bear skew for 2025 and beyond.
A MS analyst said they now expect the late tax bill to backfire or fail to pass the courts. The law has been stuck in the courts for 9 months now, and is facing an uphill battle to make it through conservative courts, including the Fifth Circuit and the Supreme Court.
Loan growth, however, remains a concern. Consumer lending is slowing, and credit card loan growth is expected to stabilize at 3%-4% in mid-2025.
The note flagged potential risks, including higher ratings and uncertainty about credit quality improvements. However, analysts remain optimistic about the beneficiaries of the deregulation and firms with EPS incentives in the year ahead.
