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Synchrony (SYF) Up 5.2% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Synchrony (SYF - Free Report) . Shares have added about 5.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Synchrony 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 drivers.
Synchrony Financial’s second-quarter 2020 earnings per share of 6 cents per share beat the Zacks Consensus Estimate by 50%. However, the bottom line plunged 95.9% year over year due to muted revenues.
Results in Detail
The company’s net interest income decreased 18% to $3.4 billion in the second quarter due to the impact of the Walmart consumer portfolio sale and the COVID-19 pandemic.
However, its other income increased 6% to $95 million, mainly attributable to lower loyalty program expenses.
In the quarter under review, loan receivables dipped 4% year over year.
Deposits were $64.1 billion, down 2% from the year-ago quarter.
Provision for credit loss increased 40% year over year to $1.7 billion due to Walmart-related prior-year reserve reduction and a hike in reserve induced by COVID-19 related losses.
Total other expense fell 7% year over year to $73 million owing to Walmart-related cost reductions, decline in purchase volume and accounts along with decrease in various discretionary spend. However, the same was partly offset by increased operational losses and costs related to the COVID-19 impact as well as charitable expenses.
Sales Platforms Update
Retail Card
The company’s interest and fees on loans fell 22% year over year due to the sale of the Walmart consumer portfolio and lower loan receivables. Loan receivables were down 4% due to COVID-19 impact while the average active accounts declined 18%.
Payment Solutions
Interest and fees on loans dropped 8% year over year due to lower late fees. Loan receivables slid 3% year over year.
Purchase volume contracted 19% while average active account slipped 3%.
CareCredit
Interest and fees on loans decreased 4% year over year due to fall in merchant discount as a result of shrinkage in purchase volume.
Loan receivables were down 5% year over year due to the coronavirus impact.
While purchase volume decreased 31%, the average active account fell 2%.
Financial Position
Total assets as of Jun 30, 2020 were $96.5 billion, down 9.3% year over year.
Total borrowings as of Jun 30, 2020 were $16 billion, down 24.4% from the year-ago quarter.
The company’s balance sheet was consistently strong during the reported quarter with total liquidity of $28 billion reflecting 29% of the total assets. While return on assets was 0.2%, the return on equity was 1.6%.
Efficiency ratio was 36.3% in the second quarter of 2020.
Capital Deployment
During the quarter under consideration, the company returned $128 million in capital through common stock dividends.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -32.05% due to these changes.
VGM Scores
Currently, Synchrony has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, 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
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Synchrony has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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Synchrony (SYF) Up 5.2% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Synchrony (SYF - Free Report) . Shares have added about 5.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Synchrony 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 drivers.
Synchrony Financial's Q2 Earnings Beat, Tumble Y/Y
Synchrony Financial’s second-quarter 2020 earnings per share of 6 cents per share beat the Zacks Consensus Estimate by 50%. However, the bottom line plunged 95.9% year over year due to muted revenues.
Results in Detail
The company’s net interest income decreased 18% to $3.4 billion in the second quarter due to the impact of the Walmart consumer portfolio sale and the COVID-19 pandemic.
However, its other income increased 6% to $95 million, mainly attributable to lower loyalty program expenses.
In the quarter under review, loan receivables dipped 4% year over year.
Deposits were $64.1 billion, down 2% from the year-ago quarter.
Provision for credit loss increased 40% year over year to $1.7 billion due to Walmart-related prior-year reserve reduction and a hike in reserve induced by COVID-19 related losses.
Total other expense fell 7% year over year to $73 million owing to Walmart-related cost reductions, decline in purchase volume and accounts along with decrease in various discretionary spend. However, the same was partly offset by increased operational losses and costs related to the COVID-19 impact as well as charitable expenses.
Sales Platforms Update
Retail Card
The company’s interest and fees on loans fell 22% year over year due to the sale of the Walmart consumer portfolio and lower loan receivables. Loan receivables were down 4% due to COVID-19 impact while the average active accounts declined 18%.
Payment Solutions
Interest and fees on loans dropped 8% year over year due to lower late fees. Loan receivables slid 3% year over year.
Purchase volume contracted 19% while average active account slipped 3%.
CareCredit
Interest and fees on loans decreased 4% year over year due to fall in merchant discount as a result of shrinkage in purchase volume.
Loan receivables were down 5% year over year due to the coronavirus impact.
While purchase volume decreased 31%, the average active account fell 2%.
Financial Position
Total assets as of Jun 30, 2020 were $96.5 billion, down 9.3% year over year.
Total borrowings as of Jun 30, 2020 were $16 billion, down 24.4% from the year-ago quarter.
The company’s balance sheet was consistently strong during the reported quarter with total liquidity of $28 billion reflecting 29% of the total assets.
While return on assets was 0.2%, the return on equity was 1.6%.
Efficiency ratio was 36.3% in the second quarter of 2020.
Capital Deployment
During the quarter under consideration, the company returned $128 million in capital through common stock dividends.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -32.05% due to these changes.
VGM Scores
Currently, Synchrony has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, 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
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Synchrony has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.