Morgan Stanley Raises Consumer Finance Outlook for 2025 From Investing.com

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

Key drivers include easing inflation, declining unemployment and stable lending standards. The delinquency rate, which slowed significantly in 2024, is expected to decline further in 2025. The segment’s EPS growth is expected to be 15%, the fastest pace in four years.

The brokerage firm emphasized that regulatory pressure has eased under the Republican-controlled government. Morgan Stanley (NYSE:) expects the failure of the CFPB’s proposed late fee rule to boost profits for companies such as Synchrony Financial (NYSE:) and Bread Financial.

Morgan Stanley upgraded Synchrony from ‘underweight’ to ‘overweight’ and raised the target stock price from $40 to $82.

Bread Financial said it was upgraded from “underweight” to “overweight” and had a target of $35 up to $76, adding that late fees are about 20-25% of BFH’s revenue.

Implementing an $8 late fee cap would have represented a significant hit to future revenues without any offset. However, the lower probability of rule survival at this point will lead to a rebalancing of the bull-bear skew after 2025.

Microsoft analysts said they now expect the late fee rule to be rolled back or not make it through the courts. The rule has been stuck in the courts for nine months now and faces a high bar to get it through conservative-dominated courts, including the Fifth Circuit and the Supreme Court.

However, there are still concerns about the growth in lending. Consumer lending is slowing, and card loan growth is expected to stabilize at 3-4% by mid-2025.

The note identifies potential risks, including high valuations and uncertainty about credit quality improvement. However, analysts remain optimistic about companies with regulatory relief beneficiaries and EPS catalysts next year.