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Synchrony Financial Up 40.4% YTD: Will the Rally Continue?

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Synchrony Financial (SYF - Free Report) stock has been in investors’ good books on the back of its consistent operational excellence, led by high interest income and capital management.

In 2018, the company’s interest income rose 9.6% year over year.

Year to date, this Zacks Rank #3 (Hold) stock have rallied 40.5%, outperforming the industry’s growth of 21.1%.

Last month, its second-quarter 2019 earnings per share of 97 cents beat the Zacks Consensus Estimate by 1% and also improved 5.4% year over year owing to higher net interest income and the PayPal Credit Program purchase. This excludes the impact of Walmart portfolio.

We expect this momentum to continue as the company gains from the following factors:

Growing Interest Income: Synchrony Financial has been witnessing strong revenue growth since 2013, riding on rising interest income. In fact, the company’s total interest income witnessed a five-year (2013-18) CAGR of 9.7%. This positive trend continued in the first six months of 2019, aided by the PayPal credit program buyout and loan receivable growth. The company’s investments in CareCredit network expansion and boosting of digital capabilities have also contributed to the top line.

Strategic Initiatives: The company has been making concerted efforts in effecting strategic buyouts to drive its business growth. Its series of acquisitions and renewal of alliances have helped it enhance its digital capabilities and diversify its business. Renewal of collaborations, such as with Bosley and Suzuki and the new pacts with Lighthouse will help the company enrich its capabilities. All these initiatives poise the company well for growth.

Strong Retail Card Platform: Retail Card is a leading provider of private label credit cards and Dual Cards, general purpose co-branded credit cards and small and medium-sized business credit products. In 2017 and 2018, Retail Card interest and fees on loans increased 10.3% and 9.3%, respectively, primarily owing to purchase volume growth and a rise in period-end loan receivables. We believe that this platform is likely to witness revenue growth going forward, boosting the company's top line in turn.

Solid Capital Position: The company’s capital position also impresses. During the quarter under consideration, it announced a new capital plan, which includes share buyback worth $4 billion through Jun 30, 2020. In the second quarter, it purchased shares worth $725 million and paid out a dividend of 21 cents per share. Its cash flow from operations have been rising since 2014, evident from its four-year (2014-2018) CAGR of 15%.

Other Noteworthy Factors

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.

Its long-term growth rate came in at 10.3%, which is a positive factor as it is above the industry's average of 8%.

Also, the company delivered a positive earnings surprise in all the last four quarters, the average being 11.4%.

Stocks to Consider

Investors interested in the finance sector may consider some better-ranked stocks like Visa Inc. (V - Free Report) , Cardtronics PLC (CATM - Free Report) and PayPal Holdings, Inc. (PYPL - Free Report) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Visa works as a payments technology company worldwide. It pulled off average four-quarter positive surprise of 3.4% and has a Zacks Rank #2 (Buy).

Cardtronics offers automated consumer financial services through its network of automated teller machines and multi-purpose financial services kiosks. The company came up with average four-quarter beat of 37.5% and sports a Zacks Rank #1.

PayPal works as a technology platform and digital payments company. It delivered average four-quarter positive surprise of 10.4% and carries a Zacks Rank of 2.

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