Q4消費金融預(yù)覽：很快生活就會變得更有趣

1、JPM 4Q19 Consumer Finance PreviewSoon Life Will Become More InterestingNorth America Equity Research17 January 2020Entering the “Roaring 20s Redux we face a mix of promise and uncertainty. TheU.S. economy remains robust with generationally low unemployment. On Jan. 1st, 21 states raised minimum wage

2、 standards (including CA, IL, NJ and NY). We believe the combination of strong employment and wage growth remains the formula for steady credit performance, but note domestic political uncertainty and global political risk have increased. The fundamental impact is likely muted in 2020, however with

3、multiples having normalized over the past 12 months, risk to sentiment and the 2021 outlook have increased. We believe risk/reward remains favorable in the near-term but may shift as we move throughout the year.Labor remains the best predictor of consumer credit - there has been a divergence over th

4、e past 3 years with credit normalizing while labor markets have continued to improve. Headed into 2020, we believe that the best case for credit is status quo of continued modest deterioration due to normalization. Notably, tail risk skews towards deterioration of credit rather than improvement. Con

5、sensus estimates seem to assume modest credit normalization and a benign economic / labor market (generally projecting high-single digit EPS growth over the next 2 years). While these estimates may represent a likely scenario, they increasingly underestimate downside risk.In general, we are increasi

6、ng our target multiples for consumer finance companies, as risk to 2020 estimates has declined. We note that we have lowered our target multiples for auto finance companies, in light of slowing auto sales and uncertainty on used car prices.Upgrade ESNT to OW (from N) on a compelling intermediate out

7、look (low rates, favorable demographics) combined with price weakness into year-end 19.Downgrade OPRT to N (from OW) as shares have approached our PT. While shares should continue to attract GARP investors, we believe other consumer finance names in our coverage offer better risk/reward profiles.Spe

8、cialty & Consumer Finance Richard Shane AC(1-415) 315-6701 HYPERLINK mailto:richard.b.shane richard.b.shaneBloomberg JPMA SHANE J.P. Morgan Securities LLCMelissa Wedel, CFA(1-415) 315-6763 HYPERLINK mailto:melissa.wedel melissa.wedelJ.P. Morgan Securities LLCCharles Arestia(1-212) 622-0755 HYPERLINK

9、 mailto:charles.arestia charles.arestiaJ.P. Morgan Securities LLCHarshav Raj(91-22) 6157-3340 HYPERLINK mailto:harshav.raj harshav.rajJ.P. Morgan India Private LimitedEquity Ratings and Price TargetsCompanyTickerMkt Cap ($ mn)Price ($) Rati Curng PrevCur Price TargetEndPrev DateEnd DateAlly Financia

10、lALLY US12,076.5030.76Nn/c32.00Dec-2033.00n/cAmerican ExpressAXP US107,964.80130.55Nn/c134.00Dec-20122.00n/cCapital OneCOF US47,929.84102.92OWn/c111.50Dec-20102.00n/cDiscover FinancialDFS US26,513.8883.64OWn/c92.00Dec-2090.00n/cEssentESNT US5,070.5851.29OWN57.50Dec-20n/cn/cNavientNAVI US3,010.0213.6

11、2OWn/c16.00Dec-2013.50n/cNMI HoldingsNMIH US2,251.7933.15OWn/c37.00Dec-20n/cn/cOneMain HoldingsOMF US5,831.1042.75OWn/c50.00Dec-2046.00n/cOportunOPRT US680.0023.05NOW24.50Dec-2022.00n/cSallie MaeSLM US3,724.158.83OWn/c10.00Dec-209.50n/cSantander Consumer (SC)SC US7,977.7523.06Nn/c23.00Dec-2026.50n/c

12、Synchrony FinancialSYF US23,193.2835.48OWn/c39.00Dec-2037.50n/cSource: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. All prices as of 16 Jan 20.See page 40 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do bu

13、siness with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. HYPERLINK /

14、 Valuation & Stock PerformanceConsumer finance stock total returns generally outpaced the S&P 500 and S&P 500 Financials Index in 2019. We note that the outsized return in 2019 were partly a function of depressed stock prices following market volatility in mid-December 2018.Figure 1: Consumer Financ

15、e Stocks: 2019 Total Returns63.1%58.7% 57.5%47.0% 38.6%38.0%37.8%32.5%32.1%31.5%8.6%OMF NAVI OPRT SYF DFS COF ALLY SC AXPS&P 500 FinancialsS&P 500SLM89.0%Source: Bloomberg.0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% HYPERLINK l _bookmark0 Figure 2 illustrates consumer finance P

16、/E multiple expansion since the beginning of 2019. In that time, multiples have gone from steep discounts to levels generally in- line with historical norms.Figure 2: Consumer Finance P/E Multiple Expansion since 1/1/201950%40%30%20%10%0%-10%-20%AXPCOFDFSSYFALLYSCNAVISLMOMFS&P500Source: Bloomberg an

17、d J.P. Morgan estimates. Note: Data from 1/1/2019 1/16/2020.In 2020, unless we see a technical re-rating, we believe that stock performancewill be more tied to EPS growth. We believe that sector valuations now fall within the normal range. Consequently, returns are more likely to be driven by idiosy

18、ncratic factors in 2020.Figure 3: Forward P/E Multiple 5-Year Trend16.0 x12.0 x8.0 x4.0 x0.0 xAXPCOFDFSSYFALLYSCNAVISLM*OMFS&P500High15.611.611.913.111.59.710.118.219.118.8Avg. Multiple13.79.49.79.88.67.47.111.97.717.2Current14.58.78.98.07.38.34.76.66.418.820.0 xLow9.97.07.35.76.74.04.66.44.115.2Sou

19、rce: Bloomberg and J.P. Morgan estimates.Credit Card and Unsecured Personal LoansCredit Remains SolidCredit remains solid, with losses well below historical averages. Despite the protracted economic expansion, we believe the backdrop for consumers remains favorable: labor is strong, interest rates a

20、re low, and gas prices are low. We expect the moderate pace of credit normalization from recent years to continue into 2020.Figure 4: NCOs as % of Unemployment Remain Below Long-Term Average140%120%100%80%60%40%20%Nov-05 Jun-06 Jan-07 Aug-07 Mar-08 Oct-08 May-09 Dec-09 Jul-10 Feb-11 Sep-11 Apr-12 No

21、v-12 Jun-13 Jan-14 Aug-14 Mar-15 Oct-15 May-16 Dec-16 Jul-17 Feb-18 Sep-18 Apr-19Nov-190%NCO/Unemployment (%)Pre-Crisis AverageSource: Bloomberg and J.P. Morgan estimates.Figure 4 shows the relationship between NCOs and the unemployment rate. Historically, this was a 1:1 relationship, but that broke

22、 down post-crisis. Our analysis shows that NCOs remain artificially low, even in light of historically low unemployment, which is why we will continue to see delinquencies and net charge- offs continue to drift higher. A cautionary note: our view is based upon continued strength in the labor market.

23、 Should the labor market strength recede, we expect credit beta would increase and NCOs could climb faster than the increase in unemployment.AXP and DFS NCOs are normalizing higher. Volatility in COF and SYF metrics is impacted by the transition of the Walmart portfolio.Figure 5: Y/Y Change in Manag

24、ed NCOs by Month (Nov 18 - Nov 19)0.60%0.40%0.20%0.00%-0.20%-0.40%-0.60%-0.80%-1.00%AXPCOFDFSSYFSource: Company reports and J.P. Morgan estimates.Figure 6: Y/Y Change in Managed DQs by Month (Nov 18 - Nov 19)0.50%0.40%0.30%0.20%0.10%0.00%-0.10%-0.20%-0.30%-0.40%AXPCOFDFSSYFSource: Company reports an

25、d J.P. Morgan estimates.Loan Growth Outlook Suggests Modest DecelerationFigure 7: Y/Y Loan Growth (LTM by Month)16.0%12.0%8.0%4.0%0.0%-4.0%-8.0%-12.0%-16.0%-20.0%AXPCOFDFSSYFSource: Company reports.Broadly, organic growth rates began to converge to low/mid-single digits in 2H19 after an extended per

26、iod of above GDP growth. We would expect loan growth to gravitate towards 1.5 to 2.5x GDP in 2020-21. AXP led peers in loan growth for most of 2019, but began to decelerate growth in late summer, declining from the 9- 10% (Y/Y) range to 7.7% in August and further to 3.8% in November. We believe AXP

27、may have modest seasoning risk as this growth slows after a long period ofexpansion. COF has maintained the lowest organic growth rate in our coverage (following outsized loan growth several years ago), but the onboarding of the Walmart portfolio from SYF drives a high net growth rate via acquired g

28、rowth. In our view, DFS has struck the best balance over the past two years, with relatively steady growth in the mid-single digits. Should COF and DFS decide to ramp up growth again, marketing expenses may climb to acquire new accounts.15.0%10.0%5.0%0.0%-5.0%Acquired GrowthOrganic Growth0.0%7.3%0.0

29、%-8.4%Figure 8: Y/Y Loan Growth, November 2019-10.0%AXPCOFDFSSYF3.8%2.5%5.3%1.5%Net Growth3.8%9.7%5.3%-6.9%Source: Company reports and J.P. Morgan estimates.Deposit Betas Distorted as Rates Decline3Q19 was an inflection point for consumer finance deposit betas, as interest rates moved lower before d

30、eposit costs. We see this as an opportunity for lenders to regain margin in 2020 as deposit rates begin to catch-up and re-price lower. (Several companies have already begun to lower deposit rates.)Deposit growth continues to be an attractive funding source for many consumer finance companies and de

31、posit balance continue to grow.Figure 9: Deposit Balances and Y/Y Growth in Deposits$ in billions$300.0$250.0$200.0$150.0$100.0$50.0$0.0AXPCOFDFSSYFALLYSC (N/A) NAVI (N/A)SLM3Q19 DepositsY/Y Growth30.0%25.0%20.0%15.0%10.0%5.0%0.0%Source: Company reports and J.P. Morgan estimates.Deposit betas have i

32、ncreased as benchmark rates have moved lower.Figure 10: Deposit Rates & LTM Deposit Beta3.00%2.50%2.00%1.50%1.00%0.50%0.00%AXPCOFDFSSYFALLYSC (N/A) NAVI (N/A)SLM3Q19 Deposit RateLTM Deposit Beta250.0%200.0%150.0%100.0%50.0%0.0%-50.0%Source: Company reports and J.P. Morgan estimates.Figure 11: 3Q19 D

33、eposit Rates versus Fed Funds Rate3.00%2.50%2.00%1.50%1.00%AXPCOFDFSSYFALLYSC (N/A) NAVI (N/A)SLM3Q19 Deposit RateFed FundsSource: Company reports, Bloomberg, and J.P. Morgan estimates.Auto LendingStock Performance Lags IndexALLY-7.3%SC-7.6%SPX9.1%Figure 120: Auto Lenders Underperform S&P in 4Q19-10

34、.0%-8.0%-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%10.0%Source: Bloomberg.Shares of ALLY and SC sharply lagged the S&P 500 during 4Q19, declining 7.3% and 7.6% respectively vs. a gain of 9.1% for the index. While both pulled back from annual highs (ALLY peaked at $35.05 on 9/12, SC at $27.51 on 7/24), both

35、ALLY and SC outperformed the S&P in 2019. On a total return basis (including dividends), ALLY finished the year up 38.0%, while SC gained 37.8%.Used Vehicle Values ModerateWhile the support of elevated used car prices has been a tailwind for auto lenders (in the form of higher recovery values), indi

36、ces that track these prices began to show signs of deceleration late in 2019. The Manheim US Used Vehicle Value Index rose from 135.4 in January to finish the year at 141.1 - we note that the Manheim Index is designed to gradually rise over time, versus a benchmark value of 100 established in 1995.

37、The JD Power Index, which is tied to a static basket of 8-year old vehicles, declined from 121.8 in September to 118.8 in November, finishing modestly higher vs 117.2 in January 2019.Figure 11: Used Vehicle Price Indices Show Deceleration in 4Q1915014013012011010090 Source: Bloomberg.JD Power Valuat

38、ion Services Used Vehicle Price Index Manheim US Used Vehicle Value IndexThe used vehicle market still has several constructive factors headed into 2020.First, affordability of new vehicles remains an issue as increasingly technological and complex vehicles command higher MSRPs. While lower rates ma

39、ke borrowing more attractive, average duration of auto loans continues to extend Experian reported that a third of auto loans for new vehicles in 1H19 had terms beyond six years (up from 10% a decade ago). Additionally, consumer preferences have shifted away from smaller sedans and cars into larger

40、trucks and SUVs with higher prices.During 3Q19, Experian estimates the average loan size for new vehicles was$32,480, vs $20,466 for used cars, while average monthly payments were $550 for new and $393 for used. Total industry deliveries exceeded 17M for the fifth year in a row, but these were propp

41、ed up by record high incentives (JD Power estimated$4,600 in incentives per vehicle in the last month of the year) and fleet sales.Despite these tailwinds for used car values, auto lenders insist they are remaining diligent on underwriting and expect the trend to normalize. On last quarters earnings

42、 call, ALLY reiterated that strong used vehicle values were partially responsible for outperformance in NCOs vs prior guidance driven by higher recoveries.Additionally, mgmt. stated current underwriting implies retail NCOs migrate up to 1.4% to 1.6%, as the used portfolio seasons and overall values

43、may drift lower. SC expressed similar sentiments last quarter, noting the particular strength of the used market and consumer demand for used vehicles.Student LendingWhat Happens to Student Lenders if Progressive Democrats Win the White House in 2020?Some of the most frequently raised questions we h

44、ear from investors these days regarding the student lenders is about what happens if the political landscape shifts dramatically as a result of the 2020 election.Recall that in the month following the 2016 election, shares of SLM rose roughly 48% as investors anticipated increasing potential for the

45、 role of private capital in the student lending industry. (Three years on, not much has changed.) With the prospect of another presidential election cycle on the horizon, investors are now evaluating the flip side of the coin - what happens to the student lenders if progressive Democrats take office

46、?Student Loan ForgivenessAs headlines abound about increasing levels of student debt outstanding, some voters and candidates are calling for some combination of free college tuition and/or student loan forgiveness. As of September 30, 2019, education loans outstanding totaled$1.6T, which was compris

47、ed of $1.5T of federally-backed loans and $150B of private education loans.Figure 12: Student Loan Balances Outstanding$ in billions1,600 1,800 $1,490$1,569$1,639 1,400 $1,236$1,320$1,4081,200 $1,055$1,146 $7721,000$855$960$6768006004002000$5892007200820092010201120122013201420152016201720189/30/19F

48、ederal Ed LoansPrivate Ed LoansTotal Education LoansSource: Federal Reserve and Department of Education.Below is a summary of some key points from the education plans (our emphasis on the higher education component) of some leading Democratic candidates.Bernie Sanders higher education plan: key poin

49、tsGuarantee tuition and debt-free public colleges, universities, HBCUs (Historically Black Colleges and Universities), MSIs (Minority Serving Institutions), and trade-schools for all Americans.Cancel student debt for all Americans ($1.6T total outstanding).Place a 1.88% cap on student loan interest

50、rates.Invest $1.3B annually in non-profit HBCUs and MSIs.Expand Pell grants to cover non-tuition expenses and triple the funding for the Work-Study program.Elizabeth Warrens higher education plan: key pointsUniversal free college (no tuition or fees) at two-year or four-year public colleges by partn

51、ering with states to share the costsDebt forgiveness:Cancel up to $50,000 of student loan debt for every person with household income $250,000.For most Americans, cancellation will be automatic using income and outstanding student loan data already available to the federal government.Cancelled debt

52、will not be taxed as income.Private student loan debt is also eligible for cancellation. The government would work with borrowers and holders of the debt.Expand Pell grant program by $100B over next 10 years to help lower-income and middle-class students avoid debt to cover non-tuition expenses (e.g

53、., room and board, books, etc.)Joe Bidens higher education plan: key pointsStudents would be provided two years of community college or other training programs. This would be available to new high school graduates and adults. Students pursuing a bachelors degree could transfer to four-year schools.

54、The plan would be a partnership between the federal government (75%) and states (25%).A new grant program would be created to help community colleges improve students retention and completion.Target assistance to low-income and middle-class students by doubling the maximum value of Pell grants and a

55、llowing students to use them and other financial aid to address non-tuition expenses.Make a $50B investment in workforce training, including community college business partnerships and apprenticeships.Income-based repayment plans would be simplified and upsized. People making$25,000 would pay 5% of

56、discretionary income in excess of $25,000 toward loans. Existing and future borrowers would automatically be enrolled in income-based repayment plans (with the option to opt out). Loan amounts outstanding after 20 years would be forgiven for people who have “responsibly” made payments through the pr

57、ogram over that time period. Forgiven debt amounts would not be taxed.People working in schools, government, or other non-profits would be afforded$10,000 of undergraduate student loan forgiveness for every year of national or community service (up to 5 years).Make private student loans dischargeabl

58、e in bankruptcy.Pete Buttigiegs higher education plan: key pointsProvide debt-free college education for lower-income families and affordable education for all other families through a state-federal partnerships.Increase Pell Grants to provide for inflation-adjusted living expenses.Cancel debt of bo

59、rrowers in low-quality, largely for-profit programs.Invest $50B in HBCUs and MSIs.“Confront” student loan debt.Increase support for students entering public service.NavientBecause of Navients predominantly FFELP (federal-backed) portfolio, investors are increasingly asking about the impact on Navien

60、t if proposed policies (or versions of them) were enacted such that college tuition became free and/or student loan debt were forgiven. We view this as a low probability outcome, considering the size of such a program (possibly exceeding $1.7T of outstanding balances by the time a program could be r