Barclays turns neutral on consumer finance stocks as recession looms
Jose Luis Pelaez Inc
Barclays turned neutral on consumer finance stocks (earlier positive) as they will likely get more inexpensive if a recession materializes in 2023 and “risk trading at trough multiples on trough earnings”.
“Given that Barclays economists are calling for a recession in 2023, we think these stocks could get more inexpensive before they work, so we view the risk/reward as balanced and downgrade Discover Financial Services (NYSE:DFS), Synchrony Financial (NYSE:SYF), OneMain Financial (OMF), and Oportun Financial (OPRT) to Equal Weight from Overweight,” said analyst Mark DeVries in a note to clients.
DeVries expects multiple expansion for the above stocks to be capped around current valuations, with significant downside risk in a recession.
Barclays also removed its top pick designation for OneMain (OMF).
Rationale for downgrades
- Discover Financial (DFS): “If we enter a recession, we see material risk from earnings downside and multiple re-rating, making the risk/reward more balanced.”
- Synchrony (SYF): “We either see a recession, which would result in material downside in earnings, or continued credit normalization, which would limit upside to the multiple. As a result, the risk/reward looks less attractive to us.”
- OneMain (OMF): “OMF is highly levered to consumer credit and the overall economy, so we believe current recession concerns will continue to weigh on the multiple.”
- Oportun (OPRT): “Macro concerns and negative sentiment around consumer credit should continue to weigh on the shares, and we struggle to see a material multiple re-rating this year.”
Earlier, credit card metrics climb closer to pre-pandemic levels in November.
