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Synchrony (SYF) Up 9% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Synchrony (SYF - Free Report) . Shares have added about 9% 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 drivers.

Synchrony Financial Q3 Earnings Top Estimates, Rise Y/Y

Synchrony Financial’s third-quarter 2019 earnings per share of $1.22 beat the Zacks Consensus Estimate by 8.9%. The bottom line also surged 34% year over year on the back of higher net interest income. This excludes the impact of the Walmart portfolio.

Results in Detail

The company’s net interest income increased 4% to $4.4 billion in the third quarter, primarily owing to loan receivables growth.

However, other income rose 35% to $85 million.

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

Deposits were $66 billion, up 6% from the year-ago quarter.

Provision for loan loss plunged 30% year over year to $1 billion on the back of a significant amount of reserve reductions pertaining to the Walmart portfolio.

Total other expenses inched up 1% to $1.1 billion, primarily due to higher marketing and business development, information processing and other expenses.

Sales Platforms Update

Retail Card


The company’s interest and fees on loans grew 5.5% year over year on the back of loan receivables.

Loan receivables reduced 11% while the average active accounts ascended 1%.

Payment Solutions

Interest and fees on loans rose 7% year over year on the back of loan receivables growth. Loan receivables augmented 7%, led by home furnishings and power products.

Purchase volume expanded 5% while average active account rose 3%.

CareCredit

Interest and fees on loans increased 9% year over year, attributable to higher loans receivables.

While purchase volume registered 10% growth, the average active account reported a 4% rise.

Financial Position

Total assets as of Sep 30, 2019 were $106 billion, down 0.8% from the level as of Dec 31, 2018.

Total borrowings as of third-quarter 2019 end were $20.3 billion, down 15.1% from 2018-end level.

The company’s balance sheet was consistently strong during the reported quarter with total liquidity of $21.7 billion, reflecting 20.5% of the total assets.

While return on assets was 3.9%, the return on equity was 28.3%.

Efficiency ratio was 30.9% in the third quarter of 2019.

Capital Deployment

During the quarter under consideration, the company purchased shares worth $550 million and paid a dividend of 22 cents per share.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, Synchrony has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Synchrony has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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