Morgan Stanley Raises Consumer Finance Outlook to 2025 By Investing.com

Investing.com — Morgan Stanley upgraded its outlook on consumer finance shares to “attractive” on positive fundamentals and a friendly regulatory environment.

Key drivers include easing inflation, falling unemployment and stable credit levels. In the year Delinquencies, which have cooled significantly in 2024, are expected to further decrease in 2025. EPS growth for the sector is forecast at 15%, marking the fastest pace in four years.

The broker highlighted the push for easier regulation under the GOP-led government. Morgan Stanley (NYSE: ) predicts that the CFPB’s proposed late fee rule will likely not pass, boosting earnings for companies like Synchrony Financial (NYSE: ) and Dabo Financial.

Morgan Stanley upgraded Synchrony to “overweight” from “underweight,” raising its price target to $82 from $40.

Bread Financial upgraded from “underweight” to “overweight”, taking a range of $35 to $76, with late fees accounting for 20-25% of BFH’s earnings.

The implementation of the $8 late payment represents material income that has been struck without compensation. However, the low probability of regime survival at this point would set the bull-bear race for 2025 and beyond.

MS analysts now say they expect the late payment law to either be rolled back or won’t make it through the courts. The law has now been stuck in the courts for 9 months and faces a high bar to pass conservative-dominated courts, including the Fifth Circuit and the Supreme Court.

Credit growth, however, is a concern. Card loan growth is expected to stabilize at 3%-4% in mid-2025 as consumer credit slows.

The note pointed to potential risks, including higher valuations and uncertainty over credit quality improvements. However, analysts remain optimistic about consumers and companies with EPS boosts next year.