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Can Synchrony (SYF) Navigate Rising Costs in Q2 Earnings?
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Synchrony Financial (SYF - Free Report) is set to report its second-quarter 2024 results on Jul 17, before the opening bell.
The Zacks Consensus Estimate for second-quarter earnings is currently pegged at $1.34 per share, implying growth of 1.5% from the year-ago reported number. The estimate was revised upward by three analysts in the past week against no movement in the opposite direction, resulting in an increase of 5 cents from $1.29 per share. The Zacks Consensus Estimate for second-quarter revenues is currently pegged at almost $4.5 billion, suggesting a 6.7% uptick from the year-ago actuals.
Image Source: Zacks Investment Research
Synchrony beat the consensus estimate for earnings in three of the trailing four quarters and missed once, with the average surprise being 1.1%, as you can see below.
Image Source: Zacks Investment Research
Q2 Earnings Whispers
Our proven model does not conclusively predict an earnings beat for Synchrony this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. That is not the case here, as you will see below.
Earnings ESP: The company has an Earnings ESP of -0.01%. This is because the Most Accurate Estimate currently stands lower than the Zacks Consensus Estimate of $1.34.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Synchrony currently carries a Zacks Rank #3.
Now, let’s see how things have shaped up before the second-quarter earnings announcement.
Q2 Factors to Note
Synchrony is expected to have seen advantages in the second quarter from increased purchase volume, loan receivables and average active accounts. Additionally, the high-interest rate environment is expected to have supported interest earned by the company.
The Zacks Consensus Estimate for Synchrony’s total purchase volumes for the quarter under review indicates an improvement of nearly 2% year over year, while our model predicts an almost 3% increase. Our model also predicts an increase of more than 11% year over year in interest and fees on loans, boosting the top line.
SYF is expected to have consistently gained from digital sales volume in the to-be-reported quarter. Both the Zacks Consensus Estimate and our model estimate suggest that the total average active accounts are likely to have risen nearly 3% year over year in the second quarter.
The financial service provider is expected to have witnessed an increase in Average Interest-Earning Assets. The consensus estimate indicates a 12.4% increase in the metric from the year-ago period, whereas our estimate suggests 12.6% growth. The Zacks Consensus Estimate for the efficiency ratio is pegged at 34.05%, indicating a decline from the prior-year reported figure of 35.50%.
The above-mentioned factors are likely to have benefited the company in the second quarter, positioning it for year-over-year growth. However, Synchrony is expected to have incurred increased information processing, marketing and business development expenses, employee costs and professional fees in the second quarter.
As such, our estimate for total non-interest expenses for the quarter is pegged at more than $1.2 billion, suggesting a 6.3% increase. Additionally, we expect a significant jump in provision for credit losses in the quarter under review. Moreover, the ongoing high-interest rate environment may have discouraged certain transactions, especially big-ticket items, potentially constraining SYF's ability to realize its full portfolio growth potential. Also, the high-interest rate could potentially increase its cost of funds.
The Zacks Consensus Estimate for the net interest margin is pegged at 14.37%, while our estimate suggests a net interest margin of 14.30%, down from 14.94% achieved a year ago, lowering its profit levels and making an earnings beat uncertain. The net charge-offs are also likely to have substantially risen in the quarter under review.
Price Performance
Synchrony's stock has exhibited an upward movement, gaining a notable percentage over the year-to-date period. It has jumped 28.6% compared with the industry’s rise of only 0.5%. Additionally, the stock outperformed the S&P 500 Index, which rallied 18.3% during the same period.
YTD Price Performance
Image Source: Zacks Investment Research
Conclusion
Given the potential for continued growth in purchase volumes and interest income, along with strong year-to-date performance, prudent shareholders are likely to hold Synchrony stock. However, increased expenses and potential constraints from the high-interest rate environment warrant caution, making it advisable to monitor the upcoming earnings results closely.
Stocks to Consider
While an earnings beat looks uncertain for Synchrony, here are some companies from the broader Finance space that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
The Zacks Consensus Estimate for SLM Corporation’s bottom line for the to-be-reported quarter is pegged at 73 cents per share, which was revised upward by 46% in the past month. The consensus estimate for SLM’s revenues is pegged at $373.3 million.
AerCap Holdings N.V. (AER - Free Report) has an Earnings ESP of +2.16% and is a Zacks #2 Ranked player.
The Zacks Consensus Estimate for AerCap’s bottom line for the to-be-reported quarter is pegged at $2.41 per share, which has moved upward by a penny in the past month. The consensus estimate for AER’s revenues is pegged at $1.9 billion. It beat earnings estimates in each of the past four quarters, with an average surprise of 26.5%.
Moody's Corporation (MCO - Free Report) has an Earnings ESP of +6.44% and a Zacks Rank of 2.
The Zacks Consensus Estimate for Moody's bottom line for the to-be-reported quarter is pegged at $2.86 per share, suggesting a 24.4% year-over-year increase. The estimate increased by 6 cents over the past week. The consensus estimate for MCO’s revenues is pegged at $1.7 billion, predicting an 11.6% increase from the year-ago period.
Image: Bigstock
Can Synchrony (SYF) Navigate Rising Costs in Q2 Earnings?
Synchrony Financial (SYF - Free Report) is set to report its second-quarter 2024 results on Jul 17, before the opening bell.
The Zacks Consensus Estimate for second-quarter earnings is currently pegged at $1.34 per share, implying growth of 1.5% from the year-ago reported number. The estimate was revised upward by three analysts in the past week against no movement in the opposite direction, resulting in an increase of 5 cents from $1.29 per share. The Zacks Consensus Estimate for second-quarter revenues is currently pegged at almost $4.5 billion, suggesting a 6.7% uptick from the year-ago actuals.
Synchrony beat the consensus estimate for earnings in three of the trailing four quarters and missed once, with the average surprise being 1.1%, as you can see below.
Image Source: Zacks Investment Research
Q2 Earnings Whispers
Our proven model does not conclusively predict an earnings beat for Synchrony this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. That is not the case here, as you will see below.
Earnings ESP: The company has an Earnings ESP of -0.01%. This is because the Most Accurate Estimate currently stands lower than the Zacks Consensus Estimate of $1.34.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Synchrony currently carries a Zacks Rank #3.
Now, let’s see how things have shaped up before the second-quarter earnings announcement.
Q2 Factors to Note
Synchrony is expected to have seen advantages in the second quarter from increased purchase volume, loan receivables and average active accounts. Additionally, the high-interest rate environment is expected to have supported interest earned by the company.
The Zacks Consensus Estimate for Synchrony’s total purchase volumes for the quarter under review indicates an improvement of nearly 2% year over year, while our model predicts an almost 3% increase. Our model also predicts an increase of more than 11% year over year in interest and fees on loans, boosting the top line.
SYF is expected to have consistently gained from digital sales volume in the to-be-reported quarter. Both the Zacks Consensus Estimate and our model estimate suggest that the total average active accounts are likely to have risen nearly 3% year over year in the second quarter.
The financial service provider is expected to have witnessed an increase in Average Interest-Earning Assets. The consensus estimate indicates a 12.4% increase in the metric from the year-ago period, whereas our estimate suggests 12.6% growth. The Zacks Consensus Estimate for the efficiency ratio is pegged at 34.05%, indicating a decline from the prior-year reported figure of 35.50%.
The above-mentioned factors are likely to have benefited the company in the second quarter, positioning it for year-over-year growth. However, Synchrony is expected to have incurred increased information processing, marketing and business development expenses, employee costs and professional fees in the second quarter.
As such, our estimate for total non-interest expenses for the quarter is pegged at more than $1.2 billion, suggesting a 6.3% increase. Additionally, we expect a significant jump in provision for credit losses in the quarter under review. Moreover, the ongoing high-interest rate environment may have discouraged certain transactions, especially big-ticket items, potentially constraining SYF's ability to realize its full portfolio growth potential. Also, the high-interest rate could potentially increase its cost of funds.
The Zacks Consensus Estimate for the net interest margin is pegged at 14.37%, while our estimate suggests a net interest margin of 14.30%, down from 14.94% achieved a year ago, lowering its profit levels and making an earnings beat uncertain. The net charge-offs are also likely to have substantially risen in the quarter under review.
Price Performance
Synchrony's stock has exhibited an upward movement, gaining a notable percentage over the year-to-date period. It has jumped 28.6% compared with the industry’s rise of only 0.5%. Additionally, the stock outperformed the S&P 500 Index, which rallied 18.3% during the same period.
YTD Price Performance
Image Source: Zacks Investment Research
Conclusion
Given the potential for continued growth in purchase volumes and interest income, along with strong year-to-date performance, prudent shareholders are likely to hold Synchrony stock. However, increased expenses and potential constraints from the high-interest rate environment warrant caution, making it advisable to monitor the upcoming earnings results closely.
Stocks to Consider
While an earnings beat looks uncertain for Synchrony, here are some companies from the broader Finance space that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
SLM Corporation (SLM - Free Report) has an Earnings ESP of +18.57% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for SLM Corporation’s bottom line for the to-be-reported quarter is pegged at 73 cents per share, which was revised upward by 46% in the past month. The consensus estimate for SLM’s revenues is pegged at $373.3 million.
AerCap Holdings N.V. (AER - Free Report) has an Earnings ESP of +2.16% and is a Zacks #2 Ranked player.
The Zacks Consensus Estimate for AerCap’s bottom line for the to-be-reported quarter is pegged at $2.41 per share, which has moved upward by a penny in the past month. The consensus estimate for AER’s revenues is pegged at $1.9 billion. It beat earnings estimates in each of the past four quarters, with an average surprise of 26.5%.
Moody's Corporation (MCO - Free Report) has an Earnings ESP of +6.44% and a Zacks Rank of 2.
The Zacks Consensus Estimate for Moody's bottom line for the to-be-reported quarter is pegged at $2.86 per share, suggesting a 24.4% year-over-year increase. The estimate increased by 6 cents over the past week. The consensus estimate for MCO’s revenues is pegged at $1.7 billion, predicting an 11.6% increase from the year-ago period.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.