Synchrony Financial (SYF) Plunges 41% YTD: Will It Recover?

Synchrony Financial's SYF stock has declined so far this year due to the widespread volatility induced by COVID-19 as well as weak first-quarter 2020 earnings.

This Zacks Rank #3 (Hold) company has lost 41.1% year to date, wider than its industry's decline of 17.7%. The price performance is also weaker than the stock movements of other companies in the same space, such as Jefferies Financial Group Inc. JEF, Capital One Financial Corporation COF and American Express Company AXP, which have lost 30.2%, 33.4% and 21.3%, respectively. Jefferies Financial holds a Zacks Rank #2 (Buy) while Capital One Financial and American Express carry the same Zacks Rank as Synchrony Financial. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the first quarter, the company reported earnings per share of 58 cents per share, missing the Zacks Consensus Estimate by 25.6%. The bottom line also declined 42% year over year due to muted revenues. The company’s net interest income decreased 8% to $3.9 billion in the first quarter due to the impact of the Walmart consumer portfolio sale.  

The company’s purchase volume saw a contraction in the last two weeks of March. Purchase volume for the first quarter reported a 1.4% dip year over year due to lower purchases in the travel, entertainment and event categories. The trend continued in April as well. The company expects the same to continue due to the current market environment, such as closures of non-essential businesses and travel restrictions. This, in turn, might adversely impact its loan receivables growth in 2020.  The present uncertainty related to the COVID-19 outbreak poses a challenge to Synchrony Financial.

Moreover, the company’s allowance for loan loss (a reserve established through a provision for loss charged to expenses) has been increasing due to continuous growth of its loan portfolio. This persistently bothers the company, which in turn, is likely to impact its risk profile adversely.

Synchrony Financial has been witnessing a steep rise in expenses since 2013, the year of its inception. The company has been making several organic and inorganic strategies to expand its footprint which in turn, resulted in higher marketing expenses and acquisition-related costs. This apart, continuous investments in digitization escalated expenditures, which will weigh on the bottom line.

Will the Stock Rebound?

Nevertheless, we are hopeful that the company will bounce back on its solid Retail Card and CareCredit Platforms.

Also, it has been taking steps to boost its digital capabilities. It also inked several alliances, which bodes well for the long haul. The company also boasts a strong capital position.

It continues to drive growth through partnerships with card networks.
Against all odds, it should be noted that the company’s solid fundamentals will help the stock turn around once the overall economic condition improves.

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Capital One Financial Corporation (COF) : Free Stock Analysis Report
 
American Express Company (AXP) : Free Stock Analysis Report
 
Jefferies Financial Group Inc. (JEF) : Free Stock Analysis Report
 
Synchrony Financial (SYF) : Free Stock Analysis Report
 
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