Synchrony Financial SYF is well-poised for growth on the back of rising interest income and inorganic growth strategies.
The company is expected to make progress, evident from its favorable VGM Score of B. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.
Over the past 30 days, the company has witnessed its 2020 earnings estimate move 0.7% north. This reflects analysts’ optimism on the stock.
Here we discuss the reasons for retaining this currently Zacks Rank #3 (Hold) company in your investment portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
This leading provider of private label credit cards in the United States delivered second-quarter 2020 earnings per share of 6 cents that beat the Zacks Consensus Estimate by 50% on lower expenses.
The company has been delivering solid results owing to its CareCredit network expansion, strategic initiatives and extending digital capabilities. It has been witnessing strong revenue growth since 2013. However, in the first half of 2020, the same suffered to some extent due to lower interest and fees on loans as well as weak interest on cash and debt securities. We expect the same to bounce back once the condition resumes normalcy.
Synchrony Financial took up strategic initiatives, which helped it grow its business. Its series of acquisitions and renewal of alliances aided it to enhance its digital capabilities and diversify its business. The company added several new merchants in the second quarter and strengthened multiple relationships. It also executed a successful launch of the new Verizon program. All these measures drive its competitive edge.
The company’s Retail Card platform 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. Retail Card interest and fees on loans have been rising over the past many years, courtesy of purchase volume growth and increased period-end loan receivables. The performance in the second quarter was sequentially better on the back of higher digital volume and programs that benefited from a spike in spending on grocery, supplies, etc. Although contribution from this segment declined to some extent in the first half of 2020, we expect the same to rebound going forward.
The company’s CareCredit platform also holds ample potential. In the second quarter, the segment added more than 2000 new provider locations to its network. This segment is well-placed for growth on the back of its current and new relationships, new programs, etc.
However, the company saw a 10.7% drop in its purchase volume for the first six months due to controlled purchases. This was due to government restrictions on travel, entertainment, events, etc. and closure of several non-essential retail stores. Although the levels improved in May and June, the same poses a challenge to Synchrony Financial.
Shares of this company have gained 6.9% in six months’ time, underperforming its industry’s growth of 14.6%.
The price performance looks muted when compared with other stock movements in the same space, such as Jefferies Financial Group Inc. JEF, WEX Inc. WEX and American Express Company AXP, which have rallied 7.5%, 17.9% and 8.6% in the same time frame.
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Last year, it generated $24 billion in global revenues. By 2020, it’s predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce “the world’s first trillionaires,” but that should still leave plenty of money for regular investors who make the right trades early.
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