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Synchrony (SYF) Down 12.6% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Synchrony (SYF - Free Report) . Shares have lost about 12.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Synchrony due for a breakout? 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 catalysts.

Synchrony Financial’s Q3 Earnings Beat, Improves Y/Y

Synchrony Financial’s third-quarter 2018 earnings per share of 91 cents surpassed the Zacks Consensus Estimate of 80 cents by 13.7%. The bottom line also improved 30% year over year, primarily backed by better strong loan receivables growth and purchase volume.

Results in Detail

The company’s net interest income increased 9% to $4.2 billion in the second quarter, primarily owing to strong loan receivables growth. In the quarter under review, the company bought the U.S. PayPal Credit financing program, acquiring $7.6 billion in receivables.

However, other income was down by 13% year over year due to loyalty programs.

Loan receivables rose 14% year over year to $88 billion.

Deposits were $62 billion, up 14% from the year-ago quarter’s level.

Purchase volume expanded 11% from the third quarter of 2017 to $36 billion.

Provision for loan loss increased 11% year over year to $1.5 billion due to the PayPal Credit reserve build, which is again partially offset by moderating credit trends.

Total other expenses increased 10% to $1.1 billion, primarily due to the PayPal Credit program purchase and other growth-related expenses.

The company renewed and added collaborations, expanded its digital capabilities as well as enhanced its CareCredit network in the reported quarter.

Sales Platforms Update

Retail Card


In the third quarter of 2018, period-end loan receivables grew 16% to $60.5 billion due to the PayPal Credit program buyout.

Interest and fees on loans grew 12% year over year to $3.4 billion.  Purchase volume was up 11% to $29.2 billion while average active accounts grew 10%, all mainly fueled by the PayPal Credit program acquisition.

Payment Solutions

Interest and fees on loans rose 8% year over year to $601 millions on the back of loan receivables growth. Loan receivables grew 9% to $17.6 billion, led by home furnishings as well as power equipment.

Purchase volume expanded 10% to $4.6 billion while average active account rose 5%.

CareCredit

Interest and fees on loans increased 6% year over year to $551 million, attributable to period-end loan receivables growth. Loan receivables growth of 8% to $9.3 billion, was attributable to dental and veterinary.

While purchase volume registered 9% growth to $2.5 billion, average active account reported a 5% rise.

Financial Position

Total assets as of Sep 30, 2018 were $104.5 billion, up 12.9% year over year.

Total borrowings as of Sep 30, 2018 were $23.7 billion, up 19.1% year over year.

The company’s balance sheet remained strong during the reported quarter with total liquidity of $23 billion or 22% of total assets.

Return on assets was 2.7% while return on equity was 18.5%.

Efficiency ratio was 31% compared with 30.4% in third-quarter 2017.

Share Repurchase and Dividend Update

In the quarter under review, the company paid a quarterly common stock dividend of 21 cents per share and bought back $966 million of Synchrony Financial common stock.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

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 quintile 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 looks promising. Notably, Synchrony has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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