Financial sector stocks have been red-hot since the November election led by bank stocks, as investors become increasingly optimistic about the impact of another large stimulus package, a resumption of buybacks, and a longer-term economic recovery.

On Tuesday, Jan. 19, JPMorgan (JPM) updated its coverage of consumer finance stocks by issuing several upgrades and downgrades, and said there are plenty of areas to love and plenty to hate in the space in 2021.

The Analyst

JPMorgan analyst Richard Shane issued the following ratings changes on Tuesday:

• American Express Company (AXP): upgraded from Underweight to Overweight, price target raised from $105 to $148.
• Synchrony Financial (SYF): upgraded from Neutral to Overweight, price target raised from $28 to $46.
• Santander Consumer USA Holdings Inc. (SC): upgraded from Underweight to Neutral, price target raised from $23 to $26.
• Navient Corp. (NAVI): downgraded from Overweight to Neutral, price target raised from $12 to $12.50.
• Essent Group Ltd (ESNT): downgraded from Overweight to Neutral, price target raised from $50 to $52.
• Guild Holdings Co. (GHLD): downgraded from Overweight to Neutral, price target raised from $18 to $18.50.
• Rocket Companies Inc. (RKT): downgraded from Overweight to Underweight, price target cut from $26 to $20.

The Thesis

In the note, Shane said he is increasingly optimistic about the U.S. macroeconomic outlook, a view that bodes well for credit card stocks like American Express. “Our increasingly optimistic macro outlook is consistent with improving forecasts of unemployment and GDP and a steepening forward 10-YT curve,” the analyst said. 

The consumer finance group as a whole should witness between 10% and 15% earnings multiple expansion by the end of 2021, he said. Shane also named OneMain Holdings Inc. (OMF) as his top overall consumer finance stock pick given its leading return on equity, its non-bank structure, and low double-digit dividend yield growth potential.

At the same time, Shane said student lending stocks will be subject to policy headline risks under the Joe Biden administration, and he is getting increasingly cautious on the potential negative impact a spike in interest rates could have on the mortgage market.

Benzinga’s Take

JPMorgan’s economic outlook is great news for banks, credit card companies, and the economy as a whole. Unfortunately, the forecast is less bullish for Rocket and any other companies that benefit from extremely low interest rates.

Latest Ratings for RKT