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Should You Buy, Sell, or Hold Synchrony Financial Stock at a 10.26X P/E?
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Synchrony Financial (SYF - Free Report) stock is currently trading at a notable discount relative to the Zacks Financial Miscellaneous Servicesindustry. With a forward 12-month price-to-earnings (P/E) ratio of 10.26, it sits well below the industry average of 16.18. The company has a Value Score of A.
Image Source: Zacks Investment Research
In comparison, companies like Bread Financial Holdings, Inc. (BFH - Free Report) and StoneX Group Inc. (SNEX - Free Report) are trading at a P/E ratio of 9.31 and 12.94, respectively. Given SYF’s valuation, we need to carefully assess this stock’s key drivers and growth prospects before deciding to buy, hold or sell.
Key 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, thanks to a solid CareCredit brand, is expected to continue its growth track.
SYF’s focus on growing the brand with partnerships and collaborations is noteworthy. Its recent partnerships with Pet Paradise and Apple Pay strengthen its position in the market. By expanding CareCredit to over 5,500 veterinary practices and extending its long-standing relationship with DICKS’S Sporting Goods, SYF is poised to boost customer engagement through tailored financing options and reward programs, enhancing loyalty and growth opportunities. Through the recent partnership with Pet Paradise, SYF’s CareCredit health and wellness credit card can be used to pay for services like day camp packages, dog training, and extended boarding stays at 60 Pet Paradise locations by 2025-end.
Higher loan balances and stable delinquencies would further help the company’s financials in the future. In the second quarter of 2024, 30+ day and 90+ day delinquency rates have declined quarter to quarter. However, both metrics increased quarter over quarter in the recent quarter. Although the year-over-year increase persists, it moderates each quarter. These metrics provide a good understanding of SYF’s asset quality, which is important in determining its growth in the coming days.
Dual and co-branded cards comprised 43% of the total purchase volume in the third 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 $18 billion, indicating a 5.5% rise from the prior-year reported number.
SYF Stock Earnings Estimates
The Zacks Consensus Estimate for SYF’s 2024 earnings is pegged at $6.54 per share, which indicates an increase of 26% year over year. The estimate witnessed upward revisions over the past seven days. SYF beat on earnings in three of the last four quarters and missed once, the average surprise being 4.5%. This is depicted in the graph below.
The consensus mark for 2024 and 2025 revenues indicates 5.4% and 3.4% year-over-year growth, respectively.
SYF Stock Price Performance
Synchrony Financial’s shares have soared 23.5% in the past three months, outperforming the industry, sector and the S&P 500 Index’s 6.5%, 3.2%, and 3.4% growth, respectively. Currently priced at $68.75, the stock is just nearly 1% shy of its 52-week high of $69.39. This proximity underscores investors’ confidence and market optimism about this company’s prospects. It has the ingredients for further price appreciation.
SYF's 3-Month Price Performance Comparison
Image Source: Zacks Investment Research
A Few Headwinds
Synchrony Financial continues to navigate challenges with declining interest income, which dipped significantly in 2022 and 2023. While net interest income showed a 7.1% year-over-year recovery in the first nine months of 2024, it remains under pressure, with fourth-quarter growth expected to be flat.
SYF anticipates a low single-digit year-over-year decline in purchase volumes for the fourth quarter. This decline reflects selective consumer spending activity and might further weigh on its top-line growth.
Conclusion
SYF's robust net interest income growth fueled by higher loan balances and stable delinquency rates bode well for growth. The company’s expanding Health & Wellness platform and strong partnerships, such as those with Apple Pay and Pet Paradise, enhance its market position. Its focus on customer engagement through tailored financing options and digital innovation strengthens its competitive edge.
However, near-term headwinds like declining purchase volume and net interest income may weigh on performance. Current shareholders should stay put, and new investors should wait for a better entry point.
Image: Bigstock
Should You Buy, Sell, or Hold Synchrony Financial Stock at a 10.26X P/E?
Synchrony Financial (SYF - Free Report) stock is currently trading at a notable discount relative to the Zacks Financial Miscellaneous Servicesindustry. With a forward 12-month price-to-earnings (P/E) ratio of 10.26, it sits well below the industry average of 16.18. The company has a Value Score of A.
Image Source: Zacks Investment Research
In comparison, companies like Bread Financial Holdings, Inc. (BFH - Free Report) and StoneX Group Inc. (SNEX - Free Report) are trading at a P/E ratio of 9.31 and 12.94, respectively. Given SYF’s valuation, we need to carefully assess this stock’s key drivers and growth prospects before deciding to buy, hold or sell.
Key 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, thanks to a solid CareCredit brand, is expected to continue its growth track.
SYF’s focus on growing the brand with partnerships and collaborations is noteworthy. Its recent partnerships with Pet Paradise and Apple Pay strengthen its position in the market. By expanding CareCredit to over 5,500 veterinary practices and extending its long-standing relationship with DICKS’S Sporting Goods, SYF is poised to boost customer engagement through tailored financing options and reward programs, enhancing loyalty and growth opportunities. Through the recent partnership with Pet Paradise, SYF’s CareCredit health and wellness credit card can be used to pay for services like day camp packages, dog training, and extended boarding stays at 60 Pet Paradise locations by 2025-end.
Higher loan balances and stable delinquencies would further help the company’s financials in the future. In the second quarter of 2024, 30+ day and 90+ day delinquency rates have declined quarter to quarter. However, both metrics increased quarter over quarter in the recent quarter. Although the year-over-year increase persists, it moderates each quarter. These metrics provide a good understanding of SYF’s asset quality, which is important in determining its growth in the coming days.
Dual and co-branded cards comprised 43% of the total purchase volume in the third 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 $18 billion, indicating a 5.5% rise from the prior-year reported number.
SYF Stock Earnings Estimates
The Zacks Consensus Estimate for SYF’s 2024 earnings is pegged at $6.54 per share, which indicates an increase of 26% year over year. The estimate witnessed upward revisions over the past seven days. SYF beat on earnings in three of the last four quarters and missed once, the average surprise being 4.5%. 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 5.4% and 3.4% year-over-year growth, respectively.
SYF Stock Price Performance
Synchrony Financial’s shares have soared 23.5% in the past three months, outperforming the industry, sector and the S&P 500 Index’s 6.5%, 3.2%, and 3.4% growth, respectively. Currently priced at $68.75, the stock is just nearly 1% shy of its 52-week high of $69.39. This proximity underscores investors’ confidence and market optimism about this company’s prospects. It has the ingredients for further price appreciation.
SYF's 3-Month Price Performance Comparison
Image Source: Zacks Investment Research
A Few Headwinds
Synchrony Financial continues to navigate challenges with declining interest income, which dipped significantly in 2022 and 2023. While net interest income showed a 7.1% year-over-year recovery in the first nine months of 2024, it remains under pressure, with fourth-quarter growth expected to be flat.
SYF anticipates a low single-digit year-over-year decline in purchase volumes for the fourth quarter. This decline reflects selective consumer spending activity and might further weigh on its top-line growth.
Conclusion
SYF's robust net interest income growth fueled by higher loan balances and stable delinquency rates bode well for growth. The company’s expanding Health & Wellness platform and strong partnerships, such as those with Apple Pay and Pet Paradise, enhance its market position. Its focus on customer engagement through tailored financing options and digital innovation strengthens its competitive edge.
However, near-term headwinds like declining purchase volume and net interest income may weigh on performance. Current shareholders should stay put, and new investors should wait for a better entry point.
SYF currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.