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Synchrony Financial (SYF) Up 99.9% in a Year: More Room to Run?

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Synchrony Financial  (SYF - Free Report) has been in investors’ good books for quite some time now owing to its wide array of products, strategic initiatives and solid second-quarter results.

Over the past 30 days, the company has witnessed its 2021 earnings estimates move 7.8% north. This instills investors' confidence in the stock.

The company’s trailing 12-month return on equity (ROE) reflects its growth potential. Its current ROE of 27.6% compares favorably with the industry's ROE of 17.8%. The metric reflects its efficiency in utilizing its shareholders’ funds.

In the past year, shares of this currently Zacks Rank #3 (Hold) company have skyrocketed 99.9%, outperforming its industry’s growth of 3.4%.

Zacks Investment Research
Image Source: Zacks Investment Research


Companies in the same space, such as Jefferies Financial Group Inc. (JEF - Free Report) , Moodys Corporation (MCO - Free Report) and Discover Financial Services  (DFS - Free Report) have also soared 104.9%, 40.4% and 137.5%, respectively, in the same time frame. All the companies carry a Zacks Rank #2(Buy), presently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Recently, the card issuer delivered second-quarter 2021 earnings per share of $2.12, which outpaced the Zacks Consensus Estimate of $1.47 by 44.2%. The bottom line also compares favorably with the year-ago quarter’s earnings of 6 cents per share, aided by lower expenses.

As a leading card issuer, the company’s inorganic story has always been one of its key growth trajectories. It frequently resorts to alliances and buyouts to enhance its capabilities and diversify its business profile. The company is actively expanding its collaborations to boost its portfolio.
Synchrony Financial also revised its tie-ups with Mattress Firm, Ashley Home furniture, American Eagle, Ashley HomeStore, TJX Companies, etc. It acquired Allegro Credit, a leading provider of point-of-sale consumer financing for audiology products and dental services. It became the card issuer of Walgreens co-branded credit card program in the United States.
It’s needless to say that additional financing options aid people in taking informed and faster decisions about choosing treatment options per the needs of their families.

The company made restructuring plans to reduce its operating expenses. In 2020 and during the first six months of 2021, it managed to decrease expenses by 4.5% and 5.4%, respectively, year over year on the back of lower other expense. The initiative is expected to decline expenses by around $210 million during 2021. It even estimates higher cost savings from this plan post 2021.

The card issuer’s CareCredit platform also holds ample growth potential. 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 and at above 17000 pharmacies across the globe. In an effort to boost the CareCredit network, Synchrony Financial made the CareCredit patient financing app available in the Epic App Orchard.

This apart, the company’s solvency position remains impressive. Its balance sheet was consistently strong during the reported quarter with total liquidity of $21.2 billion (with $16.3 billion of liquid assets), which equated to 23% of its total assets. Its times interest earned stands at 9.3X, higher than the industry average of 8.2X. Thus, its balance sheet strength impresses.

Synchrony Financial even deploys capital on the back of its solid financials. The company also recently approved a $2.9-billion share repurchase program through June 2022. Its dividend yield stands at 1.8X, higher than the industry’s average of 1.3X. In 2020, it returned $1.5 billion to its shareholders despite the COVID-19 situation.

Further Upside Left?

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

The stock carries an impressive VGM Score  of A. 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 174% from the year-ago reported figure.

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