Several major US consumer finance companies are tracking towards their full-year outlooks amid a slight acceleration in the year-over-year consumer spending and loan trends, RBC Capital Markets said in a note e-mailed Monday.
Consumer finance companies' first-quarter results have been "durable" and in line with the brokerage's expectations, with credit metrics showing continued improvement on a yearly basis amid consumer resiliency, Jon Arfstrom, associate director of US research at RBC, said in a note to clients.
"Our view is that investor expectations for spending volumes and loan growth have been gradually rising, which aligns with management-provided 2026 outlooks," Arfstrom wrote. "We also believe that the improvement in credit trends and the healthy economic environment will allow card issuers to thoughtfully lean into growth opportunities."
American Express (AXP) is still RBC's preferred stock in the card space as it continues to deliver "peer-leading" bottom- and top-line growth, Arfstrom said.
Last month, American Express posted better-than-expected first-quarter results and reiterated its full-year outlook.
"Card issuers are still reporting improving delinquency and net charge-offs on a year-over-year basis," Arfstrom said in the note. "We expect this trend to continue in the near term, and several management teams are now pointing to the low end of prior NCOs guidance ranges."
Ally Financial (ALLY) has seen "solid" auto origination activity, while its credit keeps improving, with margin expansion likely to drive "sustained" earnings improvement, Arfstrom wrote.
Capital One Financial's (COF) recent combination with Discover Financial Services is yielding "early revenue synergies, though with management focused on the longer strategic positioning of the company, we expect near-term investment activity to be an expense headwind," according to the note.
So far this year, consumer finance stocks have underperformed the broader market amid macro concerns and sentiment, "company-specific headwinds," and concerns regarding a proposed interest rate cap for card issuers, Arfstrom said.
"In total, we remain positive on the fundamental outlooks, and see support for higher valuations and stock prices as our forecasts are realized," Arfstrom wrote.
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