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.
FRC is a founder-led high growth regional bank that offers gearing to affluent households. With a market share of less than 5% of the high net worth addressable market in its footprint, we believe FRC has a long runway for future growth, making it a standout in an industry that faces a rather lackluster growth outlook.