Morgan Stanley boosts consumer finance outlook for 2025

Investing.com — Morgan Stanley upgraded its view on consumer finance stocks to “attractive” given positive fundamentals and a friendlier regulatory environment.

Key drivers include easing inflation, lower unemployment, and stable lending standards. Delinquencies, which slowed significantly in 2024, are expected to decline further in 2025. EPS growth for the sector is projected at 15%, marking the fastest pace in four years.

The brokerage highlighted lighter regulatory pressure under a 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 to Synchrony to “overweight” from “underweight,” raising target price on the stock to $82 from $40.

While Bread Financial was upgraded to “overweight” from “underweight,” taking target up to $76 from $35, adding that late fees are about 20-25% of BFH revenues.

A $8 late fee cap implementation would have represented a material forward earnings hit without offsets. However, the lower likelihood of rule survival at this point rebalances the bull-bear skew for 2025 and beyond.

MS analyst said they now expect late fee rule to either roll back or fail to make it past the courts. The rule has been stuck in the courts for 9 months now, and faces a high bar to make it past the conservative-dominated courts, including the Fifth Circuit and Supreme Court.

Loan growth, however, remains a concern. Consumer lending is slowing, with card loan growth expected to stabilize at 3%-4% by mid-2025.

The note flagged potential risks, including higher valuations and uncertainty over credit quality improvements. Yet, analysts remain optimistic about deregulation beneficiaries and firms with EPS catalysts in the next year.