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Synchrony Financial (SYF) Up 50.6% in 6 Months: More Room to Run?

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Synchrony Financial's SYF stock has been in investors’ good books on the back of the company’s restructuring plan and strategic growth initiatives.

The company has witnessed its 2020 and 2021 earnings estimate move north, reflecting investor's optimism on the stock.

In the past six months, shares of this currently Zacks Rank #3 (Hold) company have gained 50.6% against its industry’s decline of 5.8%. 

Companies in the same space, such as Oaktree Specialty Lending Corp. OCSL, Houlihan Lokey Inc. HLI and Alliance Data Systems Corporation ADS have also rallied 23.7%, 21% and 48.9%, respectively, in the same time frame. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

This leading card issuer has been witnessing strong revenue growth for the past many years. Although it suffered to some extent in the first nine months of 2020, investments in the CareCredit network expansion, strategic initiatives and a ramp-up of digital capabilities might help it going forward.

The company’s CareCredit platform also holds ample growth potential. It is poised well for growth as the company added around 2,000 new provider locations to the network in the third quarter. Synchrony Financial recently tied up with RevSpring in a bid to facilitate seamless integration of the credit card application and payment option of CareCredit with RevSpring’s payment gateway PersonaPay.

Another segment of the company, Retail Card is a leading provider of private label credit cards and Dual Cards, general purpose co-branded credit cards and small and medium-sized business credit products. Although the same slid 1% in the first nine months of 2020, we expect the segment to perform well going forward. Digital sales penetration in the third quarter was 47% while digital applications accounted for 60% of the total. The segment benefited from spending on essential items like grocery, supplies, etc.

The company undertook restructuring plans to reduce its operating expenses and invested $89 million in the same. Management expects costs to decline by $150-$250 million for 2021, courtesy of this strategic action. It even estimates higher cost savings from this implementation post next year.

Inorganic growth has always been the company’s major growth trajectory. It frequently resorts to alliances and buyouts to enhance its capabilities and diversify its business profile. It added around 4000 merchants in the third quarter and expanded its several relationships.

Synchrony Financial tied up with several payment solutions partners and will continue forging relationships in 2021. It partnered with multiple biggies, such as PayPal and Venmo, which in turn, consistently transforms the payment experience for customers.

Despite the current economic volatility, the company returned $129 million in capital through common stock dividends.

Further Upside Left?

We believe that the company is well-poised for growth on the back of various initiatives.

The stock carries an impressive VGM Score of B. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.  

The Zacks Consensus Estimate for the company’s 2021 earnings indicates an improvement of 67% from the year-ago reported figure.

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