Deutsche likes Synchrony, says Trump to boost consumer finance profits by up to 50 percent

Published Thu, Nov 17 20161:47 PM EST

Investors should buy credit card company Synchrony Financial due to the implications of Donald Trump's economic agenda, which could significantly boost the earnings of the consumer finance sector, according to Deutsche Bank. " COF / SYF receive top scores from our post-election [scenarios] scorecard. Both would likely see an outsized benefit from slower consumer credit normalization given more exposure to non-prime," analyst David Ho wrote in a note to clients Wednesday. "SYF has the edge on leverage to higher retail spending growth. Our Top Pick remains SYF." The analyst laid out earnings upside potential for various Trump proposals and outcomes such as lowering corporate taxes, job growth, rising interest rates and less regulation. His baseline case is 20 percent earnings upside with up to 50 percent possible if all the "potential impacts materialize." He reiterated his buy rating for Synchrony Financial and hold rating for Capital One. Ho said his price target for Synchrony Financial is $33. The shares closed at $32.61 on Wednesday. Ho cited how every 5 percentage point reduction in corporate tax rates could add 8 percentage points to the industry's earnings. Trump's proposed plan is to lower the corporate tax rate to 15 percent from the current 35 percent level, according to his campaign's website . He also estimated if interest rates continue to rise, it will add 4 percent to 10 percent to the sector's earnings. And additional job creation from Trump's fiscal spending could add 10 percent of earnings per share to the industry. "One of Trump's clear top priorities is US job growth, which if successful, would be the #1 benefit to the consumer finance space," he wrote. Less regulatory action from Consumer Financial Protection Bureau under a Trump administration is another tailwind. The analyst said every 5 basis point reduction in loan loss reserves due to better debt collection could increase Synchrony Financial's earnings by up to 5 percent. "The potential streamlining of oversight and likely disruption of the CFPB is generally a positive for the consumer finance group across multiple issues. However, the most tangible near-term benefit could come from a more positive outlook on recovery rates for consumer loans, assuming reduced likelihood that the CFPB will successfully enforce its more stringent 3rd party consumer debt collection proposals announced in late July," he wrote.

Synchrony Financial opens its IPO at the NYSE on July 30, 2014.

Source: Synchrony Financial | Twitter

"COF / SYF receive top scores from our post-election [scenarios] scorecard. Both would likely see an outsized benefit from slower consumer credit normalization given more exposure to non-prime," analyst David Ho wrote in a note to clients Wednesday.

"SYF has the edge on leverage to higher retail spending growth. Our Top Pick remains SYF."

The analyst laid out earnings upside potential for various Trump proposals and outcomes such as lowering corporate taxes, job growth, rising interest rates and less regulation. His baseline case is 20 percent earnings upside with up to 50 percent possible if all the "potential impacts materialize."