It has been about a month since the last earnings report for Synchrony Financial (SYF. Shares have lost about 1.2% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is SYF due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Synchrony Financial’s Earnings Surpass Estimates in Q1
Synchrony Financial’s first-quarter 2018 earnings per share of 83 cents surpassed the Zacks Consensus Estimate of 74 cents by 12.2%. The bottom line also improved 36% year over year.
Results in Detail
The company’s net interest income increased 7% to $3.8 billion in the first quarter, primarily owing to strong loan receivables growth.
However, other income was down 19.4% to $75 million, primarily due to higher loyalty program expenses, partially offset by increased interchange revenues.
Loan receivables rose 6% year over year to $78 billion.
Deposits were $57 billion, up 10% from the year-ago quarter.
Purchase volume expanded 3% from the first quarter of 2017 to $30 billion.
Provision for loan loss increased 4% year over year to $1.4 billion on credit normalization.
Total other expenses increased 8.8% to $988 million, primarily due to business growth and marketing expenses.
Sales Platforms Update
Retail Card
Interest and fees on loans grew 7% year over year, primarily driven by loan receivables growth. Loan receivables grew 5% on broad-based across partner programs.
Purchase volume and average active account rose 2% each.
Payment Solutions
Interest and fees on loans rose 9% year over year on the back of period-end loan receivables growth of 8%. Loan receivables growth was led by home furnishings and automotive.
Purchase volume growth was 7%, adjusted to exclude the impact of the hhgregg bankruptcy, and a 5% rise in average active account.
CareCredit
Interest and fees on loans increased 8% year over year, attributable to period-end loan receivables growth of 8%. Loan receivables growth was enhanced by dental and veterinary.
While purchase volume registered 8% growth, average active account reported 7% rise.
Financial Position
Total assets as of Mar 31, 2018 were $95.6 billion, up 7.3% year over year.
Total borrowings as of Mar 31, 2018 were $21 billion, up 4.1% year over year.
The company’s balance sheet remained strong during the quarter with total liquidity of $25 billion or 26% of total assets.
Return on assets was 2.7% while return on equity was 18.2%.
Efficiency ratio was 30.9% compared with 30.3% in first-quarter 2017.
Share Repurchase and Dividend Update
In the first quarter, the company paid a quarterly common stock dividend of 15 cents per share and bought back $410 million of Synchrony Financial common stock.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter compared to one lower.
VGM Scores
At this time, SYF has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.
Based on our scores, the stock is primarily suitable for value investors while also being suitable for those looking for growth and to a lesser degree momentum.
Outlook
Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Interestingly, SYF has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Image: Bigstock
Why Is Synchrony Financial (SYF) Down 1.2% Since its Last Earnings Report?
It has been about a month since the last earnings report for Synchrony Financial (SYF. Shares have lost about 1.2% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is SYF due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Synchrony Financial’s Earnings Surpass Estimates in Q1
Synchrony Financial’s first-quarter 2018 earnings per share of 83 cents surpassed the Zacks Consensus Estimate of 74 cents by 12.2%. The bottom line also improved 36% year over year.
Results in Detail
The company’s net interest income increased 7% to $3.8 billion in the first quarter, primarily owing to strong loan receivables growth.
However, other income was down 19.4% to $75 million, primarily due to higher loyalty program expenses, partially offset by increased interchange revenues.
Loan receivables rose 6% year over year to $78 billion.
Deposits were $57 billion, up 10% from the year-ago quarter.
Purchase volume expanded 3% from the first quarter of 2017 to $30 billion.
Provision for loan loss increased 4% year over year to $1.4 billion on credit normalization.
Total other expenses increased 8.8% to $988 million, primarily due to business growth and marketing expenses.
Sales Platforms Update
Retail Card
Interest and fees on loans grew 7% year over year, primarily driven by loan receivables growth. Loan receivables grew 5% on broad-based across partner programs.
Purchase volume and average active account rose 2% each.
Payment Solutions
Interest and fees on loans rose 9% year over year on the back of period-end loan receivables growth of 8%. Loan receivables growth was led by home furnishings and automotive.
Purchase volume growth was 7%, adjusted to exclude the impact of the hhgregg bankruptcy, and a 5% rise in average active account.
CareCredit
Interest and fees on loans increased 8% year over year, attributable to period-end loan receivables growth of 8%. Loan receivables growth was enhanced by dental and veterinary.
While purchase volume registered 8% growth, average active account reported 7% rise.
Financial Position
Total assets as of Mar 31, 2018 were $95.6 billion, up 7.3% year over year.
Total borrowings as of Mar 31, 2018 were $21 billion, up 4.1% year over year.
The company’s balance sheet remained strong during the quarter with total liquidity of $25 billion or 26% of total assets.
Return on assets was 2.7% while return on equity was 18.2%.
Efficiency ratio was 30.9% compared with 30.3% in first-quarter 2017.
Share Repurchase and Dividend Update
In the first quarter, the company paid a quarterly common stock dividend of 15 cents per share and bought back $410 million of Synchrony Financial common stock.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter compared to one lower.
VGM Scores
At this time, SYF has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.
Based on our scores, the stock is primarily suitable for value investors while also being suitable for those looking for growth and to a lesser degree momentum.
Outlook
Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Interestingly, SYF has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.