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Synchrony Financial (SYF) Q4 Earnings: What's in Store?

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Synchrony Financial (SYF - Free Report) will release fourth-quarter 2017 results on Jan 19, 2018 before the market opens.

Despite improving credit metrics, the company expects an increase in its allowance for loan losses from the prior-year period due to seasonal trends and catastrophic events. This is expected to impact the fourth-quarter results adversely. The Zacks Consensus Estimate for allowance for loan losses is currently pegged at $5.6 billion, up nearly 30% year over year.

Nevertheless, the company’s total interest and fees on loans are expected to increase in the fourth quarter, continuing the previous trend. This uptrend is driven primarily by the Retail Card platform and loan receivables growth. The Zacks Consensus Estimate for total interest and fees on loans is pegged at $4.3 billion, reflecting 9.8% year-over-year growth.

Synchrony Financial’s continuous generation of positive operating leverage improves the company’s efficiency ratio. For the quarter, the Zacks Consensus Estimate for efficiency ratio is pegged at 32%, reflecting a year-over-year improvement of 40 basis points.

Other Factors

The company’s strong deposit generation, loan receivables and increased online purchases are likely to drive revenues  in the fourth  quarter.

CareCredit receivables have been growing over past many years. The same trend is likely to continue in the fourth quarter as well, boosting the top line.

However, continued strong growth in lower yielding payment solution receivables is expected to push the margins down in the fourth quarter.

Also, an increase in spending on strategic investments is expected drain the bottom line in the to-be-reported quarter.

Earnings Whispers

Our proven model does not conclusively show that Synchrony Financial will beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Synchrony Financial has an Earnings ESP of -0.20%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Synchrony Financial Price and EPS Surprise

Zacks Rank: Synchrony Financial carries a Zacks Rank #3. This though increases the predictive power of ESP, a company needs a positive ESP to be confident about an earnings surprise.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies from the Finance sector that you may want to consider as these have the right combination of elements to post an earnings beat this quarter:

The Progressive Corp. (PGR - Free Report) , which is set to report fourth-quarter earnings on Jan 24, has an Earnings ESP of +2.26% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nasdaq, Inc. (NDAQ - Free Report) has an Earnings ESP of +0.08% and a Zacks Rank #2. The company is also set to report fourth-quarter earnings on Jan 31.

Cincinnati Financial Corporation (CINF - Free Report) has an Earnings ESP of +2.92% and a Zacks Rank #3. The company is set to report fourth-quarter earnings on Feb 7.

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