SOFI - Analyst Cautions Vulnerability In Finance Stocks Downgrades Ally Financial And Goldman Sachs But Optimistic On Aircraft Lessors | Benzinga
BMO Capital Market analyst James Fotheringham initiated coverage on a few aircraft lessors, investment bank, and disruptive tech lenders stocks and lowered ratings on auto lenders companies based on its Non-Performing Asset Formation Analysis.
The analyst writes that banks and specialty finance shares appreciated by almost +40% into year-end (vs. SPX +13%) and now look vulnerable to an impending credit cycle and significantly higher capital requirements.
System-wide credit is deteriorating, and lenders will likely need to grow into new capital thresholds, says the analyst.
The analyst downgraded auto lender Ally Financial Inc (NYSE: ALLY) and investment bank The Goldman Sachs Group Inc (NYSE: GS) to Market Perform from Outperform with a price target of $36 and $357, respectively.
The analyst lowered these consumer credit stocks that are sensitive to rising net charge-off rates for credit card (+185 bps) and/or prime auto (+29 bps) loans.
ALLY: The analyst sees ALLY's earnings as highly sensitive to the net interest margin benefits from lower interest rates; however, he sees slowing loan growth and rising credit costs as headwinds.
The analyst forecasts that the Fed funds rate will fall to around 5% by the end of next year, with rate cuts starting in H2 FY24, and expects rates to fall further in 2025, with Fed funds reaching around 3.5% by the end FY25.
Fotheringham estimates core EPS of $3.51 in FY24 and $5.48 in FY25.
GS: Going forward, the ...