Shares of credit card issuer Synchrony Financial (SYF) have seen a strong price rebound from their pandemic-induced declines. However, the stock has slumped lately despite solid growth in the company’s latest quarter. So, is SYF a suitable investment given the impending Federal Reserve interest rate hike? Continue reading.
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Consumer financial services company Synchrony Financial (SYF) in Stamford, Connecticut, offers a range of credit products through programs it has established with a group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and health service providers . The COVID-19 pandemic has hit the credit card issuer hard, forcing it to increase its reserve provision, building up large provisions for credit losses. Consequently, the company’s bottom line suffered. However, SYF shares rebounded in 2021 as the company bolstered its capabilities with new partnerships and diversification strategies. SYF shares have gained 18.5% in price over the past year, but have fallen 8% since the start of the year. The stock fell slightly during the day to close yesterday’s trading session at $42.70.
Despite posting strong fourth quarter earnings in line with expectations, the stock failed to generate momentum. Its net interest income exceeded forecasts, driven by record purchase volume and loan growth across all sales platforms. For its 2022 outlook, the company expects continued strength in purchase volume across all sales platforms and anticipates moderation as consumer savings and payment rates decline. It also expects its net interest margin to be consistent with the second half of 2021 and the proceeds from the portfolio disposal to create excess liquidity in the second and third quarters. This could have a negative impact on its net interest margin (NIM).
In addition, the company expects net charges and delinquencies to increase from current levels. In addition, he expects the current expected credit loss (ECCL) transition to reduce CET1 of 62 basis points.
Here’s what could shape SYF’s performance in the near term:
Significant growth in its last reported quarter
SYF’s net interest income rose 4.7% year-over-year to $3.83 billion in the fourth quarter ended Dec. 31. Its net income rose 10.2% from its value a year earlier at $813 million, while its EPS rose 19.4% year-over-year. year at $1.48. Its provision for credit losses was down 25%, due to lower net charges and lower reserve charges, including amounts attributable to HFS portfolios. And its average active accounts are up 5% from its value a year ago at 69.4 million.
Its efficiency ratio increased four percentage points from the prior year quarter to 41.1%, and its net interest margin increased 113 basis points to 15.77%. However, SYF’s ROE declined by 0.6 percentage points to 23%.
Mixed analyst expectations
Analysts expect SYF’s revenue to decline slightly year-over-year to $3.60 billion in the quarter ending March 2022. However, its revenue is expected to increase by 1.8 % in the next quarter and 3.1% in the current year. But the Street expects the company’s EPS to decline 9.8% year-over-year in the current quarter, 33.5% in the next quarter and 23.8% in the of the current year. But it is expected to grow by 35.9% per year over the next five years.
Seems undervalued at its current price
In terms of forward P/E, SYF is currently trading at 7.68x, 35.5% below the industry average of 11.90x. Additionally, its forward price-to-sales ratio of 2.01 is 39.3% below the industry average of 3.32. Its forward price/cash flow of 5.94x is 39.4% below the industry average of 9.81, while its non-GAAP forward PEG is 85.1% below the industry average. sector.
POWR ratings reflect uncertainty
SYF has an overall C rating, which translates to Neutral in our own POWR Rankings system. POWR ratings are calculated by considering 118 separate factors, with each factor weighted to an optimal degree.
The stock has a C rating for Momentum. This is warranted as the stock is currently trading below its 50-day moving average.
SYF has a D rating for Sentiment, in line with analysts’ expectations of declining revenue and EPS in the current quarter.
Among the 53 actions of the Consumer Financial Services industry, SYF is ranked #18.
Beyond what I said above, one can also check out SYF’s ratings for Quality, Growth, Value and Stability here.
See the highest rated stocks in the consumer financial services sector here.
Conclusion
SYF has had a strong rebound over the past year and experienced significant growth in its latest quarter. However, Street analysts are bearish on its near-term financial growth. Additionally, the stock has a 24-month beta of 2.04, indicating volatility. In addition, investors are worried about impending interest rate hikes. Although the financial sector tends to perform well when rates rise, “there is a danger in always saying it will happenwarned CFP Douglas Boneparth, president of Bone Fide Wealth in New York. Thus, I think it might be wise to wait for a better entry point in the stock.
How does Synchrony Financial (SYF) compare to its peers?
While SYF has an overall POWR rating of C, one might consider taking a look at its industry peers, Atlanticus Holdings Corporation (TRTA), OneMain Holdings, Inc. (OMF), and 360 Finance, Inc. (QFIN), which have a B (buy) rating.
Shares of SYF fell $0.01 (-0.02%) in premarket trading on Thursday. Year-to-date, SYF is down -7.95%, compared to a -3.71% rise in the benchmark S&P 500 over the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a master’s degree in economics, she gained knowledge in equity research and portfolio management at Finlatics.
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