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Here's Why Investors Are Retaining Synchrony (SYF) Stock Now

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Synchrony Financial (SYF - Free Report) is well-poised to grow on the back of higher interest earned, thanks to a high interest rate environment, expanding average loan receivables, growing digital capabilities and elevated benchmark rates. Its balance sheet strength is a major positive. Over the past six months, the stock has jumped 14.3%, outperforming the industry average of 8.2%.

Synchrony — with a market cap of $13.6 billion — is a premier consumer financial services company, which offers a wide range of credit products. Courtesy of solid prospects, this currently Zacks Rank #3 (Hold) stock is worth retaining in your portfolio at the moment.

Let’s delve deeper.

The Zacks Consensus Estimate for SYF’s 2023 earnings is pegged at $5.05 per share, which improved 1.8% in the past 30 days. The stock has witnessed two upward estimate revisions during this time against none in the opposite direction. Synchrony beat on earnings in three of the last four quarters and missed once, the average surprise being 5.7%. This is depicted in the graph below.

Synchrony Financial Price and EPS Surprise

Synchrony Financial Price and EPS Surprise

Synchrony Financial price-eps-surprise | Synchrony Financial Quote

The consensus mark for current-year net interest income stands at $16.9 billion, suggesting an 8% rise from the prior-year reported number. Our estimate indicates a significant increase in interest on credit cards, which is likely to support the top-line growth.

The company’s Health & Wellness platform is expected to continue its growth track, thanks to a solid CareCredit brand. SYF’s focus on growing the brand with partnerships and collaborations is noteworthy. It recently made deals with specialty dental practice support services providers, Specialty1 Partners and the University of Missouri, Oregon State University and Virginia Tech for offering pet financing solutions.

The Health & Wellness platform witnessed 10.2% year-over-year growth in average active accounts in 2022. Our estimate for 2023 indicates a further increase of more than 10%. We expect loan receivables to witness a nearly 17% jump this year.

The company expects total loan receivables to grow by more than 10% in 2023, following a 14.5% increase witnessed last year. It also anticipates interest and fees to grow going ahead and the net interest margin to be within 15-15.15% this year.

SYF exited the second quarter with cash and equivalents of $12.7 billion, which increased from $10.3 billion at 2022-end. It has a net debt to capital of 5.5%, lower than the industry average of 5.5%. Its balance sheet health supports the shareholder value boosting measures.

In the June quarter alone, it returned capital worth $399 million through share repurchases of $300 million and paid common stock dividends of $99 million. It had a remaining share buyback capacity of $1 billion at the end of June 2023. Its dividend yield of 3.1% compares favorably with the industry average of 2.3%.

Key Risks

However, there are a few factors that investors should keep an eye on.

Although the continuous high interest rate environment is helping Synchrony earn increased interest income, it will likely affect consumers’ spending levels. Also, losses are expected to build up on cards, as well as office real estate. Moreover, it expects net charge-offs for 2023 to be in the range of 4.75-4.90%, which suggests a significant increase from the 2022 reported figure of 3%. Nevertheless, we believe that a systematic and strategic plan of action will drive SYF’s growth in the long term.

Key picks

Some better-ranked players in the broader Finance space are Credit Acceptance Corporation (CACC - Free Report) , PROG Holdings, Inc. (PRG - Free Report) and Mr. Cooper Group Inc. (COOP - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Credit Acceptance’s current year earnings has improved by a penny in the past 30 days. It has witnessed one upward estimate revision during this time against no movement in the opposite direction. Also, the consensus mark for CACC’s revenues in 2023 suggests 4.2% year-over-year growth.

The Zacks Consensus Estimate for PROG Holdings’ current year earnings indicates 23.5% year-over-year growth. In the past 60 days, PRG has witnessed five upward estimate revisions against none in the opposite direction. It beat earnings estimates in all the past four quarters, with an average of 30.7%.

The consensus mark for Mr. Cooper’s current year earnings indicates a 173% year-over-year increase. It has witnessed three upward estimate revisions in the past 60 days against no downward movement. Furthermore, COOP beat earnings estimates in all the past four quarters, with an average of 17.3%.

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