3 Stocks to Watch From the Challenging Consumer Loan Industry

Core Viewpoint - The Zacks Consumer Loans industry is experiencing weakening asset quality, with modest demand for consumer loans expected due to persistent inflation and a resilient labor market, despite the Federal Reserve's interest rate cuts [1][5]. Industry Overview - The Zacks Consumer Loans industry includes companies providing various loan products such as mortgages, credit card loans, and personal loans, which are crucial for generating net interest income (NII) [3]. - Companies in this sector are also involved in commercial lending, insurance, loan servicing, and asset recovery, which helps diversify revenue sources [3]. Major Themes Influencing the Industry - Asset Quality: The industry is facing a deterioration in asset quality as high inflation and cost of living pressures lead to increased provisions for unexpected defaults [4]. - Interest Rate Cuts & Loan Demand: Although the Federal Reserve has lowered interest rates, the outlook for significant cuts is limited, leading to modest loan demand and marginal growth in NII and net interest margin (NIM) [5]. - Lending Standards: Easing lending standards and improved consumer credit scores are helping to meet loan demand, despite the overall economic challenges [6]. Industry Performance - The Zacks Consumer Loans industry currently ranks 152, placing it in the bottom 39% of over 250 Zacks industries, indicating underperformance in the near term [7][8]. - Over the past two years, the industry has outperformed the Zacks S&P 500 composite, with a collective increase of 67.2% compared to 55% for the S&P 500 [10]. Valuation Metrics - The industry has a trailing 12-month price-to-tangible book ratio (P/TBV) of 1.46X, above the five-year median of 1.15X, but significantly lower than the S&P 500's ratio of 15.00X [13][15]. Notable Companies - Capital One Financial Corporation: Focused on consumer and commercial lending, with a strong outlook for NII and NIM due to solid credit card and online banking operations [17][19]. The Zacks Consensus Estimate suggests earnings growth of 9.7% for 2025 and 19.6% for 2026 [21]. - Ally Financial Inc.: A diversified financial services company focusing on auto lending, with strategic initiatives to enhance core business operations. The Zacks Consensus Estimate indicates earnings growth of 63.8% for 2025 and 46.1% for 2026 [22][25]. - OneMain Holdings, Inc.: Engaged in consumer finance and insurance, with strategic acquisitions supporting revenue growth. The Zacks Consensus Estimate suggests a 10.1% decline in earnings for 2025 but a 39.8% growth for 2026 [27][29].