A strong economy and favorable operating conditions seems to have aided the stock of Synchrony Financial SYF, a consumer financial services company.
Its most recently reported first-quarter results were well received by investors. Earnings surpassed estimates by 12% and grew 36% year over year on net interest income growth.
The company has in fact kept up its good show by delivering a positive earnings surprise in 14 out of past 15 reported quarters.
In a year’s time, the stock has gained 34% more than double than the industry’s growth of 15.4%.
Synchrony Financial’s business has gained from strong consumer confidence, low unemployment and an improving housing market, the primary factors that often impact consumer spending behavior and demand for the company’s credit.
Higher usage of the company’s credit cards and other financing products as well as the average purchase amount of transactions on its credit cards has led to an increase in its interest and fee income.
Strong economic conditions has led to a decline in delinquencies, bankruptcies, charge-offs and allowances for loan losses, thus increasing recoveries on recievables.
Financial flexibility in the hands of consumers from the tax reform and improving consumer confidence are expected to further increase consumers’ propensity to spend more. This would act as a catalyst to the company’s earnings.
Moreover, Synchrony Financial has been forming strategic alliances in order to strengthen its position in the market, which has led to inorganic business growth. In November 2017, the company entered into a strategic partnership with PayPal to significantly expand their strategic consumer credit relationship. All these alliances aim at bringing diversification to the company’s business lines that in turn boost its competitive edge.
In April 2018, Synchrony Financial joined forces with furnishing retailer Crate and Barrel to offer customers new retail financing options. The company has started growing inorganically since the year it was formed.
Last year, tt completed the acquisition of Citi Health Card portfolio and GPShopper. The Citi Health Card portfolio buyout helped the company expand its healthcare acceptance network in the United States. The GPShopper deal has helped it to create new mobile solutions for its retail partners.
Synchrony Financial’s strong performance is reflected in its revenue growth since its inception in 2013 on the back of rising interest income. In fact, the company’s total interest income has witnessed a four-year (2013-17) CAGR of 2.6%. Continuing with this trend, the metric further grew 8.5% in the first quarter of 2018. A steady rise in revenues resulting primarily from the company’s rapidly growing interest income and inorganic growth strategies are likely to pave the way for long-term growth.
Synchrony Financial carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Oaktree Specialty Lending Corp. OCSL, Safety, Income and Growth, Inc. SAFE and TCG BDC, Inc. CGBD. Each of the stock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Oaktree Specialty beat the Zacks Consensus Estimate last reported quarter by 22.2%.
Safety, Income and Growth has seen the Zacks Consensus Estimate for current-year earnings being revised 15.7% upward over the last 30 days.
TCG BDC beat estimates in two of the four reported quarters with an average positive surprise of 9.5%.
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