Yahoo Finance Here's Why You Should Hold Synchrony (SYF) in Your Portfolio
Synchrony Financial SYF is well-poised to grow on the back of higher interest earned, thanks to a high-interest rate environment, expanding average loan receivables, growing digital capabilities and elevated benchmark rates. Its balance sheet strength is a major positive. Over the past three months, the stock has jumped 8.4%, outperforming the industry average of 2.7%.
Synchrony — with a market cap of $16.9 billion — is a premier consumer financial services company that offers a wide range of credit products. Courtesy of solid prospects, this currently Zacks Rank #3 (Hold) stock is worth retaining in your portfolio at the moment.
Let’s delve deeper.
The Zacks Consensus Estimate for SYF’s 2024 earnings is pegged at $5.70 per share, which indicates an increase of 9.8% year over year. Synchrony beat on earnings in three of the last four quarters and missed once, the average surprise being 4.2%. This is depicted in the graph below.
Synchrony Financial Price and EPS Surprise
Synchrony Financial price-eps-surprise | Synchrony Financial Quote
The consensus mark for current-year net interest income is $18 billion, suggesting a 6% rise from the prior-year reported number. The company expects net interest income to be around $17.5-$18.5 billion in 2024. Our estimate indicates a significant increase in interest on credit cards, which is likely to support the top-line growth. Innovative products, a strong labor market and normalizing payment rates should further fuel growth in net interest income.
The company’s Health & Wellness platform is expected to continue its growth track, thanks to a solid CareCredit brand. SYF’s focus on growing the brand with partnerships and collaborations is noteworthy. The company recently partnered with J. Crew Group and Mastercard to issue co-branded cards. Dual and co-branded cards comprised 43% of the total purchase volume in the fourth quarter. Synchrony is enhancing its core value proposition by expanding its product utility, enabling customers to use digital wallets, make out of partner purchases and get rewarded.
The Health & Wellness platform witnessed 13.3% year-over-year growth in average active accounts in 2023. Our estimate for 2024 indicates a further increase of 3.4%. We expect loan receivables to witness a nearly 9.9% jump this year. The company expects total loan receivables to grow approximately 6-8% in 2024, following an 11.4% increase witnessed in 2023.
SYF exited the fourth quarter with cash and equivalents of $14.3 billion, which increased from $10.3 billion in 2022 end. It has a total debt to capital of 53.5%, lower than the industry average of 55.4%. Its balance sheet health supports shareholder value-boosting measures. Synchrony also announced the sale of its Pets Best subsidiary in November 2023, which is expected to free up capital for the company.
SYF is also set to acquire Ally Financial’s point-of-sale business by the end of the first quarter of 2024. This indicates that the company is utilizing its resources well by investing in new areas. This bodes well for SYF’s strategy of enhancing its market position with synergistic acquisitions.
In the December quarter alone, it returned capital worth $353 million through share repurchases of $250 million and paid common stock dividends of $103 million. It had a remaining share buyback capacity of $600 million at the end of December 2023. Its dividend yield of 2.4% compares favorably with the industry average of 2.1%.
Key Risks
However, there are a few factors that investors should keep an eye on.
Although the continuous high-interest rate environment is helping Synchrony earn higher interest income, it will likely affect consumers’ spending levels. Also, losses are expected to build up on cards, as well as office real estate. Moreover, it expects net charge-offs for 2024 to be in the range of 5.75-6%, which suggests a significant increase from the 2023 reported figure of 4.87%. Nevertheless, we believe that a systematic and strategic plan of action will drive SYF’s growth in the long term.
Key picks
Some better-ranked stocks in the broader Finance space are AMERISAFE, Inc. AMSF, Employers Holdings, Inc. EIG and Unum Group UNM. Amerisafe and Employers Holdings sport a Zacks Rank #1 (Strong Buy), while Unum Group carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Amerisafe’s 2024 earnings is pegged at $2.48 per share, which remained stable over the past week. AMSF beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 9.8%.
The Zacks Consensus Estimate for Employers Holdings’ 2024 earnings is pegged at $3.73 per share, which remained stable over the past week. The consensus mark for EIG’s revenues in 2024 is pegged at $890.9 million.
The Zacks Consensus Estimate for Unum Group’s 2024 earnings is pegged at $8.18 per share, which indicates a year-over-year increase of 6.8%. The estimate remained stable over the past week. UNM beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 5.2%.
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