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Here's Why You Should Hold Synchrony Financial Stock in Your Portfolio
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Synchrony Financial (SYF - Free Report) is well-poised to grow on the back of rising net interest income, expanding average loan receivables, and lower delinquencies. However, softer consumer spending might act as a partial offset.
Synchrony Financial — with a market cap of $19.9 billion — is a premier consumer financial services company that offers a wide range of credit products. Courtesy of solid prospects, this Zacks Rank #3 (Hold) stock is worth retaining in your portfolio at the moment.
SYF’s Year-to-Date Price Performance
Shares of Synchrony Financial have soared 31.6% in the year-to-date period, outperforming the industry, sector, and the S&P 500 Index’s 7.4%, 15.1%, and 18.4% growth, respectively. Currently priced at $50.26, the stock is below its 52-week high of $52.67. This proximity underscores investor confidence and market optimism about this company’s prospects despite a slowdown in consumer spending. It has the ingredients for further price appreciation.
Image Source: Zacks Investment Research
SYF’s Growth Drivers
Higher loan balances, a strong labor market and normalizing payment rates should further fuel growth in net interest income. The company’s Health & Wellness platform is expected to continue its growth track thanks to a solid CareCredit brand. SYF’s focus on growing the brand with partnerships and collaborations is noteworthy.
Higher loan balances and stable delinquencies would further help the company’s financials in the future. 30+ day and 90+ day delinquency rates have declined quarter to quarter in the second quarter of 2024. Although the year-over-year increase persists, it is moderating each quarter. These metrics provide a good understanding of SYF’s asset quality, which is an important characteristic in determining its growth in the coming days.
Dual and co-branded cards comprised 42.1% of the total purchase volume in the second quarter. Synchrony Financial is enhancing its core value proposition by expanding its product utility, enabling customers to use digital wallets, make out of partner purchases and get rewarded. Moreover, the consensus mark for current-year net interest income is $17.9 billion, indicating a 5.5% rise from the prior-year reported number.
SYF’s Earnings Estimates
The Zacks Consensus Estimate for SYF’s 2024 earnings is pegged at $5.79 per share, which indicates an increase of 11.6% year over year. The estimate witnessed five upward revisions over the past 60 days against one downward movement. The consensus mark for 2025 earnings suggests 3.2% year-over-year growth. SYF beat on earnings in three of the last four quarters and missed once, the average surprise being 2.8%. This is depicted in the graph below.
The consensus mark for 2024 and 2025 revenues indicates 4.6% and 3.7% year-over-year growth, respectively.
SYF’s Valuation
From a valuation perspective, Synchrony Financial is trading relatively cheap. Going by its price/earnings ratio, the company is trading at forward earnings multiple of 8.5X, lower than the industry average of 14.08X.
Image Source: Zacks Investment Research
Key Risks
However, there are a few factors that investors should keep an eye on.
The company expects purchase volumes to decline flat to low single-digit year over year in the second half of 2024. Even though it expects the net charge-off rate in the second half to be lower than the first half of 2024, the metric is going to be worse than the previous year's figure of 4.87%. Nevertheless, we believe that a systematic and strategic plan of action will drive SYF’s growth in the long term.
The Zacks Consensus Estimate for Aflac’s current-year earnings is pegged at $6.73 per share, which indicates 8% year-over-year growth. It witnessed seven upward estimate revisions in the past 30 days against no downward movements. AFL beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 8.2%.
The Zacks Consensus Estimate for Brown & Brown’s 2024 earnings indicates 31% year-over-year growth. During the past two months, BRO has witnessed six upward estimate revisions against none in the opposite direction. It beat earnings estimates in each of the past four quarters, with an average surprise of 9.8%.
The Zacks Consensus Estimate for Arthur J. Gallagher’s current-year earnings suggests a 16% year-over-year jump. During the past two months, AJG has witnessed six upward estimate revisions against none in the opposite direction. The consensus mark for current-year revenues indicates 14.5% growth from a year ago.
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Here's Why You Should Hold Synchrony Financial Stock in Your Portfolio
Synchrony Financial (SYF - Free Report) is well-poised to grow on the back of rising net interest income, expanding average loan receivables, and lower delinquencies. However, softer consumer spending might act as a partial offset.
Synchrony Financial — with a market cap of $19.9 billion — is a premier consumer financial services company that offers a wide range of credit products. Courtesy of solid prospects, this Zacks Rank #3 (Hold) stock is worth retaining in your portfolio at the moment.
SYF’s Year-to-Date Price Performance
Shares of Synchrony Financial have soared 31.6% in the year-to-date period, outperforming the industry, sector, and the S&P 500 Index’s 7.4%, 15.1%, and 18.4% growth, respectively. Currently priced at $50.26, the stock is below its 52-week high of $52.67. This proximity underscores investor confidence and market optimism about this company’s prospects despite a slowdown in consumer spending. It has the ingredients for further price appreciation.
Image Source: Zacks Investment Research
SYF’s Growth Drivers
Higher loan balances, a strong labor market and normalizing payment rates should further fuel growth in net interest income. The company’s Health & Wellness platform is expected to continue its growth track thanks to a solid CareCredit brand. SYF’s focus on growing the brand with partnerships and collaborations is noteworthy.
Higher loan balances and stable delinquencies would further help the company’s financials in the future. 30+ day and 90+ day delinquency rates have declined quarter to quarter in the second quarter of 2024. Although the year-over-year increase persists, it is moderating each quarter. These metrics provide a good understanding of SYF’s asset quality, which is an important characteristic in determining its growth in the coming days.
Dual and co-branded cards comprised 42.1% of the total purchase volume in the second quarter. Synchrony Financial is enhancing its core value proposition by expanding its product utility, enabling customers to use digital wallets, make out of partner purchases and get rewarded. Moreover, the consensus mark for current-year net interest income is $17.9 billion, indicating a 5.5% rise from the prior-year reported number.
SYF’s Earnings Estimates
The Zacks Consensus Estimate for SYF’s 2024 earnings is pegged at $5.79 per share, which indicates an increase of 11.6% year over year. The estimate witnessed five upward revisions over the past 60 days against one downward movement. The consensus mark for 2025 earnings suggests 3.2% year-over-year growth. SYF beat on earnings in three of the last four quarters and missed once, the average surprise being 2.8%. This is depicted in the graph below.
Synchrony Financial Price and EPS Surprise
Synchrony Financial price-eps-surprise | Synchrony Financial Quote
The consensus mark for 2024 and 2025 revenues indicates 4.6% and 3.7% year-over-year growth, respectively.
SYF’s Valuation
From a valuation perspective, Synchrony Financial is trading relatively cheap. Going by its price/earnings ratio, the company is trading at forward earnings multiple of 8.5X, lower than the industry average of 14.08X.
Image Source: Zacks Investment Research
Key Risks
However, there are a few factors that investors should keep an eye on.
The company expects purchase volumes to decline flat to low single-digit year over year in the second half of 2024. Even though it expects the net charge-off rate in the second half to be lower than the first half of 2024, the metric is going to be worse than the previous year's figure of 4.87%. Nevertheless, we believe that a systematic and strategic plan of action will drive SYF’s growth in the long term.
Stocks to Consider
Investors interested in the broader Finance space may look at some better-ranked players like Aflac Incorporated (AFL - Free Report) , Brown & Brown, Inc. (BRO - Free Report) and Arthur J. Gallagher & Co. (AJG - Free Report) . Each stock presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Aflac’s current-year earnings is pegged at $6.73 per share, which indicates 8% year-over-year growth. It witnessed seven upward estimate revisions in the past 30 days against no downward movements. AFL beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 8.2%.
The Zacks Consensus Estimate for Brown & Brown’s 2024 earnings indicates 31% year-over-year growth. During the past two months, BRO has witnessed six upward estimate revisions against none in the opposite direction. It beat earnings estimates in each of the past four quarters, with an average surprise of 9.8%.
The Zacks Consensus Estimate for Arthur J. Gallagher’s current-year earnings suggests a 16% year-over-year jump. During the past two months, AJG has witnessed six upward estimate revisions against none in the opposite direction. The consensus mark for current-year revenues indicates 14.5% growth from a year ago.