Jose Luis Pelaez Inc
Barclays is neutral on (previously positive) consumer finance stocks as they are likely to be cheaper if a recession hits in 2023 and “trade risk at multiples on low income”. Best”.
“Given that the economists of Barclays are forecasting a recession in 2023, we think these stocks could be cheaper before they do, so we view the risk/reward as balanced and downgrade Discover Financial Services (NYSE:DFS), Synchronous Finance (NYSE:SYF), OneMain Finance (OMF) and Oportun Finance (OPRT) to Equal Weight from Overweight,” analyst Mark DeVries said in a note to clients.
DeVries expects multiple expansions to the above stocks to be capped around current valuations, with significant downside risk during a downturn.
Barclays also removed its top pick designation for OneMain (OMF).
Reason for downgrade
- Financial Discovery (DFS): “If we go into a recession, we’ll see severe risk from falling earnings and re-ranking many times over, making risk/reward more balanced.”
- synchronized (SYF): “We could see a recession, which would lead to a severe drop in earnings or continued credit normalization, which would limit the possibility of multiples. risk/reward seems less appealing to us.”
- OneMain (OMF): “OMF is highly leveraged on consumer credit and the economy as a whole, so we believe the current recession concerns will continue to weigh on the multiplier.”
- Oportun (OPRT): “Macro concerns and negative sentiment around consumer credit will continue to weigh on equities and we have difficulty revisiting this year’s key multiplier.”
Before that, credit card figures rose closer to pre-pandemic levels in November.
