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Why Is Synchrony (SYF) Down 9.7% Since Last Earnings Report?
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A month has gone by since the last earnings report for Synchrony (SYF - Free Report) . Shares have lost about 9.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Synchrony due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Synchrony Q2 Earnings Beat Estimates on Expense Management
Synchrony Financial reported second-quarter 2024 adjusted earnings per share (EPS) of $1.55, which comfortably beat the Zacks Consensus Estimate of $1.35. The bottom line also increased from $1.32 per share a year ago.
Net interest income improved 6.9% year over year to $4.4 billion in the second quarter. However, it missed the consensus mark by 0.8%.
The strong quarterly earnings were supported by expanding the loan receivables portfolio and increased interest and fees on loans. Despite consumer spending becoming selective, its diversified portfolio continues to augment growing demand from customers. While expenses did increase, they were managed well enough to not offset the revenue gains substantially. The positives were partially offset by lower purchase volume and net interest margin.
Q2 Results in Detail
Retailer share arrangementsof Synchrony fell 8.7% year over year to $810 million due to increased net charge-offs, partly offset by higher net interest income. Total loan receivables of SYF grew 7.9% year over year to $102.3 billion but missed the consensus mark of $104.1 billion in the quarter under review.
Total deposits were $83.1 billion, which rose 9.7% year over year and beat our model estimate by 2.4%. Provision for credit losses increased 22.3% year over year to $1.7 billion due to increased net charge-offs, higher than our estimate of $1.5 billion.
The purchase volume of Synchrony declined 0.9% year over year to $46.8 billion in the second quarter. Also, the figure missed the consensus estimate of $48 billion.
Interest and fees on loans of $5.3 billion improved 10.2% year over year on the back of a growing average loan receivables portfolio. Net interest margin deteriorated 48 basis points (bps) year over year to 14.46%, but came above our model estimate of 14.30% and the Zacks Consensus Estimate of 14.31%.
New accounts of 5.1 million slipped 14% year over year. Average active accounts increased 2% year over year to 71 million in the second quarter.
Total other expenses of SYF increased 0.7% year over year to $1.2 billion but remained below our estimate by around 5%. The efficiency ratio of 31.7% improved 380 bps year over year in the quarter under review and remained below the consensus mark of 34.1%.
Individual Sales Platforms' Update
Home & Auto period-end loan receivables climbed 6.1% year over year to $32.8 billion on the back of lower payment rates and the Ally Lending acquisition. However, the purchase volume of $12.5 billion declined 2.8% year over year in the second quarter. Interest and fees on loans grew 11.3% year over year to $1.4 billion, beating our estimate by 8.1% on the back of growth in loan receivables and increased benchmark rates.
Digital period-end loan receivables of $27.7 billion rose 7.6% year over year in the quarter under review on lower payment rates. Purchase volume was $13.4 billion, down 0.5% year over year due to decreased spend per account and the impact of credit actions. Interest and fees on loans climbed 8.6% year over year to $1.5 billion, driven by growth in loan receivables, higher benchmark rates and lower payment rates. However, it missed our estimate by nearly 9%
Diversified & Value period-end loan receivables grew 6.5% year over year to $19.5 billion in the second quarter on decreased payment rates. Purchase volume of $15.3 billion fell 0.1% year over year, attributable to the impact of credit actions. Interest and fees on loans advanced 6.8% year over year to $1.2 billion on higher loan receivables and benchmark rates and lower payment rate. However, it missed our estimate by 4.7%.
Health & Wellness period-end loan receivables of $15.3 billion rose 14.7% year over year in the quarter under review on increased purchase volume and reduction in payment rates. Purchase volume climbed 1.8% year over year to $4.1 billion on the back of strong growth in Pet, partly offset by decreased spending in Vision and credit actions’ impact. Interest and fees on loans improved 15.9% year over year to $911 million, which outpaced our estimate by more than 10% on increased loan receivables and a decline in payment rate.
Lifestyle period-end loan receivables advanced 8.6% year over year to $6.8 billion in the second quarter on reduced payment rates. Purchase volume of $1.5 billion declined 3.5% year over year, due to reduced transaction values and credit actions. Interest and fees on loans climbed 11.2% year over year to $258 million, thanks to growth in average loan receivables and benchmark rates and lower payment rate.
Financial Position (as of Jun 30, 2024)
Synchrony exited the second quarter with cash and equivalents of $18.6 billion, higher than the $14.3 billion recorded at 2023-end. Total assets rose to $120.5 billion in the second quarter from $117.5 billion at 2023-end. Total borrowings fell to $15.6 billion from $16 billion at the end of 2023. Total equity of $15.5 billion increased from $13.9 billion at 2023-end.
SYF’s balance sheet was consistently strong in the reported quarter, with total liquidity of $23 billion accounting for 19.1% of its total assets.
Return on assets of 2.2% improved 10 bps year over year in the second quarter, but return on equity fell 30 bps year over year to 16.7%.
Capital Deployment
Synchrony returned capital worth $300 million through share buybacks and paid common stock dividends of $100 million in the second quarter of 2024. It had a leftover share buyback capacity of $1 billion.
2024 Guidance
It expects 2024 earnings per share within $7.60-$7.80, up from 2023 level of $5.19. It includes a $1.96 per share impact of Pets Best gain on sale.
For the second half of the year, it expects purchase volumes to decrease flat to low single-digit year over year due to credit actions and softening consumer demand. It expects receivables growth to continue to moderate during this time. Net interest income and other income are expected to witness progressive growth as product, pricing and policy changes are implemented.
It expects the net charge-off rate to be lower in the second half compared with the first half level of 6.37%. It also expects Other expenses to remain steady in the second half of 2024, maintaining the same level as the average of the first half of 2024, measured in absolute dollar terms.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
The consensus estimate has shifted 5.16% due to these changes.
VGM Scores
Currently, Synchrony has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Synchrony has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Synchrony (SYF) Down 9.7% Since Last Earnings Report?
A month has gone by since the last earnings report for Synchrony (SYF - Free Report) . Shares have lost about 9.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Synchrony due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Synchrony Q2 Earnings Beat Estimates on Expense Management
Synchrony Financial reported second-quarter 2024 adjusted earnings per share (EPS) of $1.55, which comfortably beat the Zacks Consensus Estimate of $1.35. The bottom line also increased from $1.32 per share a year ago.
Net interest income improved 6.9% year over year to $4.4 billion in the second quarter. However, it missed the consensus mark by 0.8%.
The strong quarterly earnings were supported by expanding the loan receivables portfolio and increased interest and fees on loans. Despite consumer spending becoming selective, its diversified portfolio continues to augment growing demand from customers. While expenses did increase, they were managed well enough to not offset the revenue gains substantially. The positives were partially offset by lower purchase volume and net interest margin.
Q2 Results in Detail
Retailer share arrangementsof Synchrony fell 8.7% year over year to $810 million due to increased net charge-offs, partly offset by higher net interest income. Total loan receivables of SYF grew 7.9% year over year to $102.3 billion but missed the consensus mark of $104.1 billion in the quarter under review.
Total deposits were $83.1 billion, which rose 9.7% year over year and beat our model estimate by 2.4%. Provision for credit losses increased 22.3% year over year to $1.7 billion due to increased net charge-offs, higher than our estimate of $1.5 billion.
The purchase volume of Synchrony declined 0.9% year over year to $46.8 billion in the second quarter. Also, the figure missed the consensus estimate of $48 billion.
Interest and fees on loans of $5.3 billion improved 10.2% year over year on the back of a growing average loan receivables portfolio. Net interest margin deteriorated 48 basis points (bps) year over year to 14.46%, but came above our model estimate of 14.30% and the Zacks Consensus Estimate of 14.31%.
New accounts of 5.1 million slipped 14% year over year. Average active accounts increased 2% year over year to 71 million in the second quarter.
Total other expenses of SYF increased 0.7% year over year to $1.2 billion but remained below our estimate by around 5%. The efficiency ratio of 31.7% improved 380 bps year over year in the quarter under review and remained below the consensus mark of 34.1%.
Individual Sales Platforms' Update
Home & Auto period-end loan receivables climbed 6.1% year over year to $32.8 billion on the back of lower payment rates and the Ally Lending acquisition. However, the purchase volume of $12.5 billion declined 2.8% year over year in the second quarter. Interest and fees on loans grew 11.3% year over year to $1.4 billion, beating our estimate by 8.1% on the back of growth in loan receivables and increased benchmark rates.
Digital period-end loan receivables of $27.7 billion rose 7.6% year over year in the quarter under review on lower payment rates. Purchase volume was $13.4 billion, down 0.5% year over year due to decreased spend per account and the impact of credit actions. Interest and fees on loans climbed 8.6% year over year to $1.5 billion, driven by growth in loan receivables, higher benchmark rates and lower payment rates. However, it missed our estimate by nearly 9%
Diversified & Value period-end loan receivables grew 6.5% year over year to $19.5 billion in the second quarter on decreased payment rates. Purchase volume of $15.3 billion fell 0.1% year over year, attributable to the impact of credit actions. Interest and fees on loans advanced 6.8% year over year to $1.2 billion on higher loan receivables and benchmark rates and lower payment rate. However, it missed our estimate by 4.7%.
Health & Wellness period-end loan receivables of $15.3 billion rose 14.7% year over year in the quarter under review on increased purchase volume and reduction in payment rates. Purchase volume climbed 1.8% year over year to $4.1 billion on the back of strong growth in Pet, partly offset by decreased spending in Vision and credit actions’ impact. Interest and fees on loans improved 15.9% year over year to $911 million, which outpaced our estimate by more than 10% on increased loan receivables and a decline in payment rate.
Lifestyle period-end loan receivables advanced 8.6% year over year to $6.8 billion in the second quarter on reduced payment rates. Purchase volume of $1.5 billion declined 3.5% year over year, due to reduced transaction values and credit actions. Interest and fees on loans climbed 11.2% year over year to $258 million, thanks to growth in average loan receivables and benchmark rates and lower payment rate.
Financial Position (as of Jun 30, 2024)
Synchrony exited the second quarter with cash and equivalents of $18.6 billion, higher than the $14.3 billion recorded at 2023-end. Total assets rose to $120.5 billion in the second quarter from $117.5 billion at 2023-end. Total borrowings fell to $15.6 billion from $16 billion at the end of 2023. Total equity of $15.5 billion increased from $13.9 billion at 2023-end.
SYF’s balance sheet was consistently strong in the reported quarter, with total liquidity of $23 billion accounting for 19.1% of its total assets.
Return on assets of 2.2% improved 10 bps year over year in the second quarter, but return on equity fell 30 bps year over year to 16.7%.
Capital Deployment
Synchrony returned capital worth $300 million through share buybacks and paid common stock dividends of $100 million in the second quarter of 2024. It had a leftover share buyback capacity of $1 billion.
2024 Guidance
It expects 2024 earnings per share within $7.60-$7.80, up from 2023 level of $5.19. It includes a $1.96 per share impact of Pets Best gain on sale.
For the second half of the year, it expects purchase volumes to decrease flat to low single-digit year over year due to credit actions and softening consumer demand. It expects receivables growth to continue to moderate during this time. Net interest income and other income are expected to witness progressive growth as product, pricing and policy changes are implemented.
It expects the net charge-off rate to be lower in the second half compared with the first half level of 6.37%. It also expects Other expenses to remain steady in the second half of 2024, maintaining the same level as the average of the first half of 2024, measured in absolute dollar terms.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
The consensus estimate has shifted 5.16% due to these changes.
VGM Scores
Currently, Synchrony has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Synchrony has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.