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Why Is Synchrony (SYF) Up 7.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Synchrony (SYF - Free Report) . Shares have added about 7.8% 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 catalysts.

Synchrony Financial Q4 Earnings Beat Estimates, Up Y/Y

Synchrony Financial delivered fourth-quarter 2020 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.

Results in Detail

The company’s net interest income plunged 9% year over year to $3.7 billion in the fourth quarter due to the impact of COVID-19 pandemic.

Its other income fell 21% year over year to $82 million due to increased loyalty program costs.

In the quarter under review, loan receivables declined 6% year over year.

Deposits were $62.8 billion, down 4% from the year-ago quarter.

Provision for credit losses declined 32% year over year to $750 million due to reduced net charge-offs, partly offset by a reserve increase of $119 million.

Total other expense slid 7% year over year to $1 billion attributable to reduced purchase volume and accounts, employee costs, and operational losses.

Sales Platforms Update

Retail Card

The company’s interest and fees on loans declined 13% year over year due to reduced loan receivables and impact of the pandemic.

Loan receivables were down 8% on account of the coronavirus impact, partly offset by growth in digital partners. While purchase volume inched up 1%, the average active account fell 10%.

Payment Solutions

Interest and fees on loans dropped 9% year over year due to reduced yields on loan receivables. Loan receivables dipped 2% year over year due to the impact of the pandemic.

Purchase volume contracted 7%, while average active account fell 9%.

CareCredit

Interest and fees on loans decreased 4% year over year due to fall in merchant discount stemming from reduced purchase volume. Loan receivables were down 7% year over year on account of the coronavirus impact.

While purchase volume decreased 6%, the average active accounts fell 10%.

Financial Position

Total assets as of Dec 31, 2020 were $95.9 billion, down 8.5% year over year.
Total borrowings as of Dec 31, 2020 were $15.8 billion, down 20.6% from the year-ago quarter.

The company’s balance sheet was consistently strong during the reported quarter with total liquidity of $23.7 billion, accounting for 24.7% of total assets.

While return on assets was 3.1%, the return on equity was 23.6%.
Efficiency ratio was 37.1% in fourth-quarter 2020.

Capital Deployment

During the quarter under consideration, Synchrony Financial returned $128 million in capital via common stock dividends.

Recently, the company’s board of directors authorized a share repurchase program of up to $1.6 billion. Beginning in first-quarter 2021, the program runs through Dec 31, 2021.

Full-Year Update

For 2020, the company’s earnings per share of $2.27 surpassed the Zacks Consensus Estimate of $2.02. However, the bottom line plunged 59.2% year over year.

While net interest income for the year declined 14.3% year over year to $14.4 billion, other income improved 9.2% year over year to $405 million. Total other expense fell 4.5% year over year to $4.1 billion.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 22.17% due to these changes.

VGM Scores

Currently, Synchrony has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise 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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