Synchrony Financial (SYF) Up 60.3% in a Year: More Room to Run?

Zacks Equity Research
·4-min read

Synchrony Financial’s SYF stock has been in investors’ good books on the back of its fourth-quarter 2020 results and strategic growth initiatives.

The company witnessed its 2020 and 2021 earnings estimate move north over the past seven days, reflecting investors’ optimism on the stock.

In the past one year, shares of this currently Zacks Rank #2 (Buy) company have gained 60.3%, outperforming its industry’s growth of 10.2%.

Companies in the same space, such as Oaktree Specialty Lending Corp. OCSL, American Express Company AXP and Discover Financial Services DFS have also gained 35.5%, 49.9% and 77.9%, respectively, in the same time frame. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

This leading card issuer delivered fourth-quarter earnings per share of $1.24, which outpaced the Zacks Consensus Estimate by 36.3%. Further, the bottom line improved 7.8% year over year on the back of lower expenses.

Inorganic growth has always been the company’s major growth trajectory. It frequently resorts to alliances and buyouts to enhance its capabilities and diversify its business profile. The company is actively expanding its alliances to boost its portfolio. Apart from tying up with biggies, it even became the card issuer of Walgreens co-branded credit card program in the United States.

It recently expanded its consumer financing program deal with the US Home furnishings company Ashley HomeStore Ltd, which originated in 2010. Through its differentiated solutions and an intensified focus on customers, the company also offers safe and secured shopping to its consumers across every stage of their purchasing process. All these initiatives poise the company well for long-term growth.

Its CareCredit platform holds ample growth potential. It is poised well for growth as the company added around 2,000 new provider locations to the network in the third quarter. It is focused on expanding this business with attention paid to the health systems. CareCredit is accepted at more than 9,000 Walgreens and Duane Reade stores.

Another segment of the company, Retail Card is a leading provider of private label credit cards and Dual Cards, general purpose co-branded credit cards and small and medium-sized business credit products. The segment benefited from spending on essential items like grocery, supplies, etc.

The company’s solvency position also impresses. Its total debt constitutes 55.4% of its total capital, significantly lower than its industry average of 59%. As of Dec 31, 2020, it had cash and cash equivalents worth $11.5 billion and undrawn credit facilities of $5.4 billion, the sum total of which is higher than its borrowings of $15.8 billion. On the back of its capital strength, the company returned $128 million in the fourth quarter. Despite the economic uncertainty, it returned $1.5 billion to its shareholders.

The company undertook restructuring plans to reduce its operating expenses and invested $89 million in the same. The initiative is expected to decrease expenses by around $210 million during 2021, courtesy of this strategic action. It even estimates higher cost savings from this implementation post next year.

Further Upside Left?

We believe that the company is well-poised for growth on the back of various initiatives.

The stock carries an impressive VGM Score of B. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.

The Zacks Consensus Estimate for the company’s 2021 earnings indicates an improvement of 103.5% from the year-ago reported figure.

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