Capital One And Synchrony Are BMO's Top Consumer Finance Picks

BMO Capital's James Fotheringham argued consumer finance stocks were among the most undervalued sectors since the United Kingdom voted for its independence. "Post-Brexit, domestic consumer lenders are our favored stocks within our coverage universe of U.S. Large-cap Banks and Specialty Finance companies," stated Fotheringham.

Capital One Financial Corp. (NYSE: COF) and Synchrony Financial (NYSE: SYF) are Fotheringham's top buy recommendations among his coverage.

Capital One

"We prefer Capital One because it is a fast-growing regional bank, valued as if it were still a specialty monoline lender instead of a regional bank," said the analyst. The company was valued at only 7.6x two-year-forward P/E despite being fully deposited, funded with diversified assets and having over 9 percent EPS growth estimates in 2017.

The analyst has a Buy rating and a $108 price target on Capital One.

Related Link: Barclays Sums Up Fed Stress Test Outcomes For Consumer Finance

Synchrony Financial

"We also prefer Synchrony because we remain excited about its expected near-term use of significant excess capital to initiate dividends and buyback shares," said Fotheringham. Synchrony had excess capital equal to about 25 percent of its total market value and the analyst forecasted a 65 percent total-payout ratio beginning in the second half of 2016.

Additionally, the analyst thought it was probable Synchrony would grow by acquisitions of loan portfolios and adjacent businesses.

Fotheringham has a Buy recommendation and a $108 price target on Synchrony.

At time of writing, Synchrony traded up 0.36 percent at $25.38 and Capital One traded down 0.54 percent at $63.17.