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Why Is Synchrony (SYF) Down 7.4% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Synchrony (SYF). Shares have lost about 7.4% 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 catalysts.

Synchrony Financial Q2 Earnings Top Estimates, Rise Y/Y

Synchrony Financial’s second-quarter 2019 earnings per share of 97 cents beat the Zacks Consensus Estimate by 1%. The bottom line also improved 5.4% year over year on the back of higher net interest income and the PayPal Credit Program purchase. This excludes the impact of Walmart portfolio.

Results in Detail

The company’s net interest income increased 11% to $4.2 billion in the second quarter, primarily owing to the PayPal Credit program acquisition and loan receivables growth.

However, other income rose 42.9% to $90 million.

In the quarter, loan receivables inched up 4% year over year to $81.8 billion.

Deposits were $65.6 billion, up 11% from the year-ago quarter.

Purchase volume expanded 12% from the second quarter of 2018 to $38.3 billion.

Provision for loan loss decreased 6% year over year to $1.2 billion due to the reserve release related to the reclassification of the Walmart portfolio to loans held for sale.

Total other expenses climbed 8.6% to $1 billion, primarily due to higher professional fees, marketing and business development and other.

Sales Platforms Update

Retail Card

The company’s interest and fees on loans grew 16% year over year.

Loan receivables inched up 2% while the average active accounts ascended 11%, all driven by the company’s consolidation of the PayPal Credit program.

Payment Solutions

Interest and fees on loans rose 6% year over year on the back of loan receivables growth. Loan receivables augmented 8%, led by home furnishings and power products.

Purchase volume expanded 4% while average active account rose 3%.

CareCredit

Interest and fees on loans increased 7% year over year, attributable to dental and veterinary.

While purchase volume registered 7% growth, the average active account reported a 5% rise.

Financial Position

Total assets as of Jun 30, 2019 were $106.4 billion, up 7.3% year over year.

Total borrowings as of second-quarter 2019 end were $21.2 billion, down 2.2% year over year.

The company’s balance sheet was consistently strong during the reported quarter with a total liquidity of $23.7 billion, reflecting 22.3% of the total assets.

While return on assets was 3.3%, the return on equity was 23.1%.

Efficiency ratio was 31.3% in the second quarter of 2019.

Capital Deployment

During the quarter under consideration, the company announced a new capital plan, which includes share buyback worth $4 billion. Moreover, it announced a quarterly dividend of 22 cents per share beginning the third quarter.

In the second quarter, it purchased shares worth $725 million and paid a dividend of 21 cents per share.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month.

VGM Scores

Currently, Synchrony has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, 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

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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