It has been about a month since the last earnings report for Synchrony (SYF - Free Report) . Shares have added about 12.8% 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 catalysts.
Synchrony Financial’s Q1 Earnings Miss, Decline Y/Y
Synchrony Financial’s first-quarter 2020 earnings per share of 58 cents per share missed the Zacks Consensus Estimate by 25.6%. The bottom line also declined 42% year over year due to muted revenues.
Results in Detail
The company’s net interest income decreased 8% to $3.9 billion in the first quarter due to the impact of the Walmart consumer portfolio sale.
Moreover, its other income increased 5.4% to $97 million, mainly attributable to lower loyalty program expenses.
In the quarter under review, loan receivables inched up 3% year over year.
Deposits were $64.6 billion, up 1% from the year-ago quarter.
Provision for credit loss increased 95% year over year to $1.7 billion due to Walmart credit loss reserve reduction, a higher reserve build related to coronavirus and CECL in the first quarter.
Total other expense dipped 3.9% year over year to $1 billion due to lower employee costs, professional fees, marketing and business development expenses.
Sales Platforms Update
The company’s interest and fees on loans fell 12% year over year due to the sale of the Walmart consumer portfolio.
Loan receivables were up 2% while the average active accounts declined 10%.
Interest and fees on loans rose 3% year over year on the back of loan receivables growth. Loan receivables augmented 3% year over year.
Purchase volume expanded 2% while average active account rose 2%.
Interest and fees on loans increased 9% year over year, attributable to higher loans receivables.
Loan receivables grew 7% year over year on the back of dental and veterinary.
While purchase volume registered 2% growth, the average active account reported a 5% rise.
Total assets as of Mar 31, 2020 were $98 billion, down 7% year over year.
Total borrowings as of Mar 31, 2020 were $17.2 billion, down 21.2% from the year-ago quarter.
The company’s balance sheet was consistently strong during the reported quarter with total liquidity of $24.8 billion reflecting 25.3% of the total assets.
While return on assets was 1.1%, the return on equity was 9.1%.
Efficiency ratio was 32.7% in the first quarter of 2020.
During the quarter under consideration, the company repurchased shares worth $1 billion. However, it suspended the rest of the buyback capacity due to the COVID-19 impact.
Moreover, it paid quarterly dividend of 22 cents per share.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -99.51% due to these changes.
Currently, Synchrony has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Synchrony has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.