Cramer: Consumer Finance Stocks Set to Soar in 2025

In the ever-evolving world of finance, it's crucial to stay ahead of the curve and anticipate the trends that will shape the market in the coming years. As an investor, I'm always on the lookout for sectors that are poised for growth, and Morgan Stanley's recent upgrade of consumer finance stocks to "attractive" has caught my attention. In this article, I'll delve into the reasons behind this upgrade and explore the factors that make consumer finance stocks an attractive investment opportunity in 2025.

First, let's address the key drivers behind Morgan Stanley's bullish outlook for the consumer finance sector:

1. Easing Inflation: Lower inflation rates reduce the cost of borrowing for consumers, leading to increased consumer spending and demand for credit products. This, in turn, benefits consumer finance companies, as they can lend more at lower costs, driving their profitability and growth.
2. Lower Unemployment: A lower unemployment rate indicates a stronger economy, with more people employed and having the income to spend and borrow. This increased demand for consumer finance products and services leads to improved earnings for companies in the sector.
3. Stable Lending Standards: Stable lending standards ensure that consumer finance companies can maintain their credit quality while still providing access to credit for consumers. This helps to maintain the sector's profitability and growth, as well as reduce the risk of defaults.
4. Declining Delinquencies: A slowdown in delinquencies indicates that consumers are better able to manage their debt obligations, reducing the risk of defaults and improving the overall credit quality of the sector. This leads to improved earnings for consumer finance companies.
5. Lighter Regulatory Pressure: A GOP-controlled government is expected to implement lighter regulatory pressure on the consumer finance sector, which can lead to improved profitability and growth for companies in the sector.

Now, let's discuss the specific companies that Morgan Stanley has upgraded and the factors contributing to their potential growth in 2025:

1. Synchrony Financial (NYSE:SYF): Morgan Stanley upgraded Synchrony to "overweight" from "underweight," raising its target price on the stock to $82 from $40. This upgrade was driven by the expectation of lower delinquencies, which would boost the company's earnings. Additionally, the potential rollback or failure of the CFPB's proposed late fee rule would further boost Synchrony's earnings, as the rule would have represented a material forward earnings hit without offsets.
2. Bread Financial (NYSE:BFH): Bread Financial was also upgraded to "overweight" from "underweight," with the target price raised to $76 from $35. Late fees account for about 20-25% of BFH's revenues, so the potential rollback or failure of the late fee rule would have a significant impact on the company's earnings. The lower likelihood of the rule's survival rebalances this potential earnings hit, benefiting Bread Financial in 2025.

In conclusion, the consumer finance sector's projected 15% EPS growth in 2025 is driven by several factors, including easing inflation, lower unemployment, stable lending standards, declining delinquencies, and lighter regulatory pressure. This growth rate is expected to be higher than the overall economic growth projections for 2025 and the projected market growth, indicating that the consumer finance sector is expected to perform well relative to the broader market.

As an investor, I would keep a close eye on consumer finance stocks in 2025, as they are poised for significant growth due to the favorable fundamentals and regulatory environment. Companies like Synchrony Financial and Bread Financial, with their upgraded outlooks and potential earnings catalysts, should be on your radar as you navigate the ever-changing investment landscape.