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Why Is Synchrony (SYF) Up 6.6% Since Last Earnings Report?

Zacks Equity Research
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It has been about a month since the last earnings report for Synchrony (SYF). Shares have added about 6.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Synchrony due for a pullback? 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 catalysts.

Synchrony Financial’s Q4 Earnings Beat, Increase Y/Y

Synchrony Financial’s fourth-quarter 2018 earnings per share of $1.09 surpassed the Zacks Consensus Estimate by 17.2%. The bottom line also improved 55.7% year over year on the back of PayPal Credit program acquisition and robust loan receivables growth.

Results in Detail

The company’s net interest income increased 3% to $4.3 billion in the fourth quarter, primarily owing to strong loan receivables growth.

However, other income was up by 3.2% year over year to $64 million.

In the quarter under review, loan receivables rose 14% year over year to $93 billion.

Deposits were $64 billion, up 13% from the year-ago quarter.

Purchase volume expanded 10% from the fourth quarter of 2017 to $40 billion.

Provision for loan loss decreased 3% year over year to $1.3 billion due to lower reserve build.

Total other expenses rose 11% to $1078 million, primarily due to PayPal Credit program acquisition and costs related to growth.

Sales Platforms Update

Retail Card


Interest and fees on loans of the company grew 14% year over year to $3.5 billion.

Loan receivables grew 16% to $65 billion while average active accounts climbed 9%, all driven by the company’s buyout of PayPal Credit program.

Payment Solutions

Interest and fees on loans rose 9% year over year to $627 million on the back of period-end loan receivables growth. Loan receivables grew 9% to $18 billion, led by home furnishings and luxury.

Purchase volume expanded 8% to 4.7 billion while average active account rose 7%.

CareCredit

Interest and fees on loans increased 7% year over year to $564 million, attributable to loan receivables growth. Loan receivables growth was enhanced by dental and veterinary.

While purchase volume registered 7% growth to $2 billion, average active account reported a 4% rise.

Financial Position

Total assets as of Dec 31, 2018 were $106.7 billion, up 11.4% year over year.

Total borrowings as of Dec 31, 2018 were $23.9 billion, up 14.9% year over year.

The company’s balance sheet remained strong during the reported quarter with total liquidity of $19 billion, or 18% of total assets.

Return on assets was 2.9% while return on equity was 21.5%.

Efficiency ratio was 30.4% compared with 30.3% in fourth-quarter 2017.

 

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 -6.95% due to these changes.

VGM Scores

Currently, Synchrony has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Synchrony has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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