Why Is Synovus (SNV) Up 3.4% Since the Last Earnings Report?

A month has gone by since the last earnings report for Synovus Financial Corp. SNV. Shares have added about 3.4% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock’s next earnings release, or is it 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.

Synovus Tops Q1 Earnings, Buys Cabela's Financial Unit

Riding on higher revenues, Synovus recorded a positive earnings surprise of 11.8% in first-quarter 2017. Adjusted earnings of $0.57 per share beat the Zacks Consensus Estimate of $0.51. Also, the reported figure was up 29.8% from the prior-year quarter.

Higher revenues backed by strong loans & deposits balances drove organic growth. Moreover, improvement in credit quality was a positive factor, along with a fall in provisions. However, escalating expenses remain a concern.

Net income available to common shareholders came in at $69.3 million or $0.56 per share compared with $50.0 million or $0.39 recorded in the prior-year quarter.

Synovus turned out to be a potential buyer of the financial unit of outdoor goods retailer, Cabela's Incorporated (CAB). The bank entered into a definitive agreement to buy Cabela's banking operation – World's Foremost Bank – which issues store-branded credit cards. Further, the bank will subsequently resell the credit card portfolio to Virginia-based Capital One Financial Corporation (COF) on closing of the deal while holding back about $1.2 billion brokered time deposit portfolio. Per the terms, Synovus will get $75 million from Cabela’s and Capital One.

Organic Growth Recorded, Expenses Up

Total revenue in the first quarter was $304.1 million, up 8.1% year over year. In addition, the top line outpaced the Zacks Consensus Estimate of $301.9 million.

Net interest income increased 10.0% year over year to $239.9 million. Further, net interest margin expanded 15 bps year over year to 3.42%.

Non-interest income climbed 13.8% year over year to $71.8 million, primarily due to rise in most of expense components. Adjusted non-interest income was $66.0 million, up 3.9% year over year.

However, total non-interest expenses were $197.4 million, up 4.9% year over year while adjusted non-interest expenses came in at $190.6 million, up 6.4% from the prior year. Notably, non-interest expenses displayed a rise in almost all components of expenses.

Total deposits came in at $25.1 billion, up 7.3% year over year. Total net loans climbed 6.7% year over year to $24.0 billion.

Credit Quality Improved

Credit quality metrics for Synovus improved in the quarter.

Net charge-offs were $6.9 million, down 6% on a year-over-year basis. The annualized net charge-off ratio was 0.12%, down 1 bp from the prior-year quarter. Provision for loan losses decreased 7.5% year over year to $8.7 million from $9.4 million as of Mar 2016.

Non-performing loans, excluding loans held for sale, were down 11.1% year over year to $158.4 million. The non-performing loan ratio was 0.65%, down 13 bps year over year.

Additionally, total non-performing assets amounted to $187.2 million, reflecting a decline of 13.6% year over year. The non-performing asset ratio contracted 18 bps year over year to 0.77%.

Capital Position: A Mixed Bag

Tier 1 capital ratio and total risk based capital ratio were 10.18% and 12.09%, respectively, compared with 10.04% and 12.25% as of Mar 31, 2016.

Further, as of Mar 31, 2017, Common Equity Tier 1 Ratio (fully phased-in) was 9.63% compared with 9.47% in the prior-year quarter. Tier 1 Leverage ratio was 9.13% compared with 9.15% in the year-ago quarter.

Capital Deployment Update

During the first quarter, the company repurchased common stock worth $15.1 million.

2017 Outlook

Management projects average loan and average total deposits growth of around 5–7%.

Net interest income is projected to grow in the range of 10–12%. Also, management remains focused on achieving adjusted non-interest income growth of 2–4%.

Total non-interest expense is projected to increase 2–4%. Also, management expects to maintain positive operating leverage.

The company’s loan loss reserve ratio is expected to be above 1%, though a slightly downward trend is likely to be witnessed. Further, it expects net charge-off ratio of 15 to 20 bps. Non-performing assets and liabilities are expected to be relatively flat in 2017.

Management expects the tax rate to be 34% or 35% in 2017.

Long-term Targets

The company expects EPS (earnings per share) to grow more than 10%.

Return on assets of 1% has been projected.

Management projects adjusted efficiency ratio to be lower than 60%.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been eight upward revisions for the current quarter. In the past month, the consensus estimate has shifted upward by 7.27% due to these changes.

Synovus Financial Corp. Price and Consensus

 

Synovus Financial Corp. Price and Consensus | Synovus Financial Corp. Quote

VGM Scores

At this time, Synovus' stock has a subpar Growth Score of 'D', a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

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

The stock is suitable solely for value based on our styles scores.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.

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