Deutsche starts consumer, specialty finance group with 8 buys, 8 holds

Deutsche Bank last night initiated coverage of 16 consumer and specialty finance stocks among a group of consumer lenders, student lenders, and mortgage finance players with eight buys and eight holds. Most of the stocks are highly cyclical, “so being mindful of where we are in the relevant cycles is critical,” the analyst tells investors in a research note. The firm believes the outlook for the consumer credit cycle is mixed, but priced for greater economic weakness than seems likely. As such, it sees some attractive risk/reward among lenders with lower risk borrowers like American Express (AXP), lenders that have already experienced credit pressure from inflation like OneMain Holdings (OMF) or have catalysts that aren’t tied to the business cycle, like Synchrony (SYF) and Ally Financial (ALLY). Deutsche views the cycle timing for the mortgage finance stocks as far more favorable with mortgage originations troughing in 2023 and 2024 expectations still modest by historic standards. The firm put Buy ratings on Ally, American Express, Mr. Cooper (COOP), First American (FAF), OneMain, PennyMac Financial (PFSI), SLM (SLM) and Synchrony. It put Hold ratings on Capital One (COF), Discover (DFS), Fidelity National (FNF), Navient (NAVI), PennyMac Mortgage (PMT), Rocket Companies (RKT), SoFi Technologies (SOFI) and UWM Holdings (UWMC).