Synchrony Financial Stock: Abundant Upside Potential (NYSE:SYF)

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Synchrony Financial (NYSE: SYF) is a private label consumer credit card company with huge upside potential. Jumping in, the company produced incredible free cash flow growth, earnings growth, retained earnings growth, incredibly strong net interest margin, return on equity and is as fairly stable as the top ranked banks in the market. Additionally, Synchrony has consistently expanded its partnerships and user growth with plenty of room for more growth to come.

(Note: All financial data is sourced from under the symbol SYF.)

Synchrony’s free cash flow numbers are sky-high:

Synchrony produced impressive free cash flow numbers. Synchrony’s 4Q21 free cash flow per TTM share was $12.47. Compare that with the 4Q16 TTM’s free cash flow per share of $7.83, and it’s clear that Synchrony has proven to generate substantial cash flow growth over the past five years. This growth translates into a total increase of 59.25% with a CAGR of 9.76%. Synchrony’s free cash flow growth is attractive from an investor perspective. Even more appealing is the fact that Synchrony only trades at a price to free cash flow ratio of 3.30. According to csimarket, the average P/FCF ratio for the consumer financial services sector in 4Q21 is 22.93.

Synchrony generated massive earnings and retained earnings growth:

As with free cash flow, Synchrony’s earnings growth has been outstanding. Synchrony’s 4Q21 EPS TTM came in at $7.33. 4Q16 TTM earnings per share were $2.71. This represents a total increase of 170% with a CAGR of just over 22%. Synchrony’s five-year earnings growth is impressive and should not be overlooked. Synchrony only trades at a P/E ratio of 5.62. According to csimarket, this average P/E ratio for the consumer financial services sector in 4Q21 is 32.33.

Another impressive aspect of the business is Synchrony’s retained earnings growth. Synchrony’s retained earnings in 4Q21 were $14.24 billion. The retained earnings figure in 4Q16 was $5.33 billion. This translates to a total increase of 167% with a CAGR of 21.73% over the past five years. Synchrony is generating equity at an extremely favorable rate.

Synchrony produces industry-leading net interest margins and return on equity:

Synchrony’s net interest margin may be one of the most attractive aspects of the company’s financial performance. Companies in the consumer finance sector make their money from interest, and Synchrony’s numbers show it’s doing particularly well. In 4Q21, Synchrony’s net interest margin was 15.77%. According to Bankregdata, the average net interest margin of all US banks was 2.34% in 4Q21. If you are looking for a highly profitable business in the consumer financial services industry, Synchrony’s net interest margin leads the industry.

Synchrony’s above-average net interest comes with a favorable return on equity. In 4Q21, Synchrony’s return on equity was 32.84%. The broader market considers a return on equity above 20% to be good. With Synchrony more than 50% above that benchmark, it’s safe to say the company is doing a solid job of creating value for its investors.

Synchrony is as evenly stable as the largest financial institutions in the United States:

Following the 2008 financial crisis, regulators implemented the Common Equity Tier 1 (CET1) ratio to ensure that financial institutions hold sufficient capital to risk-weighted assets to ensure that institutions can cope with financial difficulties. Financial institutions are required to maintain a CET1 ratio of at least 4.5%. The higher the CET1 ratio, the better, as it indicates more capital available to operate relative to risk-weighted assets. Synchrony Financial maintains a CET1 ratio of 15.60% in 4Q21, well above the required minimum of 4.5%. To provide insight into the quality of Synchrony’s CET1 ratio, Statista data shows only three US financial institutions with a higher CET1 ratio than Synchrony Financial. Synchrony has 246% more capital than it needs relative to its risk-weighted assets, indicating that the company is fairly stable financially.

Fair market valuation of Synchrony Financial:

A key takeaway from the data above is that Synchrony is performing better financially than a large majority of its consumer finance peers, while trading at ratios somewhat lower than those peers. . I will calculate hypothetical market values ​​for Synchrony using industry standard P/E and P/FCF ratios as well as average P/E and P/FCF ratios in the consumer financial services industry. From there, I’ll take the average earnings and free cash flow as a fair market price for Synchrony Financial.

Starting from free cash flow, I use a P/FCF ratio of 20 as a base, because free cash flow is generally a better indicator of a company’s earning power. This would give Synchrony a fair market value of $249.40 per share based on its 4Q21 TTM free cash flow per share of $12.47. If we were to use the industry average P/FCF ratio of 22.93, we would get a value of $285.93 per share.

Moving on to earnings, I use a multiple of 15 as my standard P/E ratio. Based on Synchrony’s 4Q21 TTM EPS of $7.33, we would get a value of $109.95 per share. Considering the industry average P/E multiple of 32.33, we would get a value of $236.97 per share.

If we were to take the average of four different values ​​derived from general analytical standards as well as comparisons with industry peers, we would come up with a value of $220.56 per share. Although this figure may seem excessively high, it is derived from reasonable data. I will take the lower end of the $110 per share estimate as a price target for Synchrony Financial with further upside potential.

Synchrony extends its partnerships and renews current partnerships:

Moving to more qualitative aspects of Synchrony Financial is the company’s continued ability to generate new partnerships. In 4Q21, Synchrony successfully partnered with 36 new companies for the use of its private label credit cards. These new partnerships resulted in 25 million new account creations. The business model is smart, and as long as Synchrony can continue to generate new partnerships and account creations, I think we will see improvements in terms of results.

Synchronize purchase volume and new accounts

4Q21 New Accounts and Buy Volume Performance ( 4Q21 Results Presentation)

Additionally, Synchrony is doing a great job of expanding current partnerships. In 4Q21, Synchrony renewed its agreements with 38 current partners. Regardless of industry, customer retention is necessary for a successful business, and I find Synchrony does a great job of maintaining its base as well as its expansion initiatives.

Synchrony generates more active accounts and higher purchase volume:

As expected with the success of Synchrony with its business partners, the company saw a good increase in the average number of active accounts and purchase volume. Synchrony’s purchase volume in 4Q21 was $47.1 billion, up 18% from $39.9 billion in 4Q20. The average number of active accounts in 4Q21 was 69.4 million, up 5% from 66.3 million in 4Q20. Synchrony’s business is based on collecting interest on purchases with its co-branded credit cards. So, seeing solid growth metrics in active accounts and purchase volume is a good sign for potential investors.


In conclusion, Synchrony Financial produces industry-leading financial results while simultaneously trading below industry valuation metrics. Synchrony’s free cash flow, earnings and retained earnings all showed impressive growth. Net interest margins and return on equity are good and leading the pack. Synchrony is financially stable as evidenced by its high CET1 ratio. Moreover, the business operations of the company look great as new partnerships are created, existing partnerships are renewed, active accounts increase and purchase volume increases. Based on the data, I recommend Synchrony as a solid buy at current levels with a price target of $110 per share.


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