Investing.com — Morgan Stanley upgraded its outlook on the consumer finance stock to “favorable” given good fundamentals and a friendly regulatory environment.
Key drivers include lower inflation, lower unemployment, and stable lending standards. Crime, which slowed significantly in 2024, is expected to decline further in 2025. EPS growth in the sector is estimated at 15%, marking the fastest pace in four years.
The brokerage has shown light regulatory pressure under the GOP-controlled government. Morgan Stanley (NYSE:) predicts that the CFPB's proposed late fee rule will not pass, raising earnings for companies like Synchrony Financial (NYSE:) and Bread Financial.
Morgan Stanley upgraded Synchrony to “overweight” from “underweight,” raising its target price on the stock to $82 from $40.
While Bread Financial was upgraded to “overweight” from “underweight,” it took the target up to $76 from $35, adding that late fees are about 20-25% of BFH's earnings.
The implementation of a late fee of $8 would have represented the revenue of the transferred material without the reduction. However, the low probability of survival at this stage will rebalance the bullish skew in 2025 and beyond.
An MS analyst said they now expect the late payment law to be reversed or fail to pass through the courts. The rule has been stuck in the courts for 9 months now, and faces a high bar to make it through conservative-control 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% through 2025.
The note pointed to potential risks, including high valuations and uncertainty about credit quality improvements. However, analysts remain optimistic about deregulation beneficiaries and firms with EPS catalysts next year.