Consumer Finance: 2Q Preview: looking for clues for what 2H will bring in 2Q earnings

Research evidence excerpt

Consumer Finance: 2Q Preview: looking for clues for what 2H will bring in 2Q earnings

Valuations above recent history for AXP, BFH

AXP and BFH are both trading at premiums to their respective historic 5-year averages,

though it is more pronounced at BFH (35% above), than AXP (5% above). COF and SYF

are trading at 5% / 9% discounts to their respective 5-year historic averages. For BFH,

the high premium could lend room for downside during 2Q earnings if card issuers signal

that there could be pressure in the back half. Recently, there has been some discussion

that while consumers may be able to weather higher prices at the pump, if oil prices

drive goods inflation, they may start to struggle.

Exhibit 3: AXP and BFH are trading above 5-year average multiples, while SYF and COF are below

Card issuer forward P/E multiples currently vs 5yr average

18.0x 16.7x 15.8x Current PE ('27 EPS) Historical Average (5yr)

15.0x

12.0x

8.5x 9.0x 8.1x 7.2x 7.3x 6.5x 6.7x 6.0x 5.4x 6.0x

3.0x

0.0x

AXP COF SYF BFH OMF

Source: Bloomberg, BofA Global Research

BofA GLOBAL RESEARCH

Regulatory risk returns?

News articles yesterday suggested the CFPB may be looking at late fees again. This

pressured consumer finance stocks – particularly Synchrony and Bread which were down

9.6% and 8.3% (vs. S&P 500 down 0.3%). The article suggests the Bureau is seeking

public comments before pursuing rulemaking. We note the CFPB had previously

proposed a rule to cut late fees to $8 per instance (from approx. $30 prior) but the rule

had been blocked by the courts. It is likely too early to say if the CFPB will be proposing

a new rule this time.

Based on disclosures, we note late fees comprise approx. 12% of SYF’s total revenue

and 5% of COF’s total revenues. While BFH does not disclose late fees separately, we