Investing.com — Morgan Stanley upgraded its outlook on the consumer finance stock to “attractive” given positive fundamentals and a more favorable regulatory environment.
Key drivers include falling inflation, lower unemployment and stable lending standards. Arrears, which slowed significantly in 2024, are expected to further decrease in 2025. EPS growth for the sector is forecast at 15%, the fastest pace in four years.
The brokerage noted less regulatory pressure under the GOP-controlled government. Morgan Stanley (NYSE: ) predicts 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 its 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 are around 20-25% of BFH’s revenue.
Implementing an $8 late fee cap would represent a significant drop in earnings without offsets. However, the lower likelihood of the rule surviving at this point balances the bullish-bearish skew for 2025 and beyond.
An MS analyst said they now expect the late fee rule to either be overturned or not make it through the courts. The rule has been stuck in the courts for 9 months and faces a high bar to pass conservative-dominated courts, including the Fifth Circuit and Supreme Court.
Credit growth, however, remains a concern. Consumer lending is slowing, and the growth of card loans is expected to stabilize at 3%-4% by mid-2025.
The note flagged potential risks, including higher valuations and uncertainty about improving credit quality. Still, analysts remain bullish on deregulation beneficiaries and companies with EPS catalysts next year.
