Many investors agree that normalized EPS will eventually matter, but they are not sure when the market will start to focus on it. We do not expect the market to begin discounting normalized EPS until negative revision risk is in the rear view, at which point we expect material upside in the consumer finance stocks.
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We are launching coverage of Mid-Cap Regional Banks at Market Underweight (MU) and Consumer Finance at Market Overweight (MO). Within Consumer Finance, we are Outperform on AXP, COF, DFS, SYF, and ALLY based on our view that they will benefit from declining credit headwinds and greater top-line torque on their paths to normalized earnings in 2022. Our cautiousness on Regional Banks is based on their anemic topline growth outlooks under ZIRP, but we do see attractive relative value pairing opportunities within the group and initiate at Underperform on CFG, CMA, CFR, KEY, PNC, ZION; Outperform on FITB, FRC, HBAN, MTB, RF, SIVB, TFC, USB; and Peer Perform on PB.
Quality super regional with a strong Midwestern U.S. footprint will experience a sharper inflection in normalized 2022 EPS and ROTCE relative to peers as we emerge from recession, despite ZIRP.