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Synchrony (SYF) Down 7.9% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Synchrony (SYF). Shares have lost about 7.9% 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 its most recent earnings report in order to get a better handle on the important drivers.

Synchrony Financial Q4 Earnings Top Mark, Rise Y/Y

Synchrony Financial’s fourth-quarter 2019 earnings per share of $1.10 beat the Zacks Consensus Estimate by 1.9%. The bottom line also improved 0.9% year over year on the back of higher other income. The company’s Payments Solution and CareCredit segments also contributed to its results. This excludes the impact of the Walmart portfolio.

Results in Detail

The company’s net interest income decreased 7% to $4 billion in the fourth quarter due to the impact of the Walmart consumer portfolio sale.

Moreover, the company’s other income soared 63% to $104 million, mainly attributable to lower loyalty program expenses.

In the quarter under review, loan receivables declined 6% year over year.
Deposits were $65.1 billion, up 2% from the year-ago quarter.

Provision for loan loss plunged 24% year over year to $1.1 billion on the back of lower core business development and information processing along with other expenses.

Total other expenses are flat at $1.1 billion with the year-ago reported results.

Sales Platforms Update

Retail Card


The company’s interest and fees on loans fell 10% year over year due to the sale of the Walmart consumer portfolio.

Loan receivables were down 12% while the average active accounts declined 7%.

Payment Solutions

Interest and fees on loans rose 4% year over year on the back of loan receivables growth. Loan receivables augmented 4% including the impact of the reclassification of the Yamaha portfolio to loan receivables held for sale.

Purchase volume expanded 6% while average active account rose 3%.

CareCredit

Interest and fees on loans increased 9% year over year, attributable to higher loans receivables.

While purchase volume registered 12% growth, the average active account reported a 5% rise.

Financial Position

Total assets as of Dec 31, 2019 were $104.8 billion, down 1.8% from the level as of Dec 31, 2018.

Total borrowings as of fourth-quarter 2019 end were $19.9 billion, down 17.2% from 2018-end level.

The company’s balance sheet was consistently strong during the reported quarter with total liquidity of $23.4 billion reflecting 22.3% of the total assets.

While return on assets was 2.7%, the return on equity was 19%.

Efficiency ratio was 34.8% in the fourth quarter of 2019.

Capital Deployment

During the quarter under consideration, the company purchased shares worth $1.4 billion and paid out a dividend of 22 cents per share.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -9.67% due to these changes.

VGM Scores

Currently, Synchrony has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. 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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