Synchrony (SYF) down 25.2% in 3 months: should you stay put? – April 5, 2022
Synchrony Financialit’s (SYF – Free Report) shares are down 25.2% in the past three months. By comparison, the industry it belongs to fell 0.1%, the sector fell 3.5%, and the S&P 500 depreciated 2.8% during this period. Let’s dig deeper to understand if this drop in SYF stock price is cause for concern or if you should take it easy.
Image source: Zacks Investment Research
Probable causes of decline
Synchrony Financial offers a wide range of consumer credit and installment loan products for a diverse group of customers. Therefore, paying off consumer debt is a growth engine for companies like Synchrony Financial. Due to government assistance, stimulus checks, accumulated savings amid the pandemic, and other reasons, consumers were seen to be in a good position to repay their loans. However, increasing market volatility is changing the scenario. High inflation, global shortage of supply and other factors are affecting consumers, making investors uncertain about consumer debt. Additionally, Russia’s invasion of Ukraine and fears of sluggish economic growth are expected to impact consumer spending, which in turn may affect credit card issuer SYF.
Beyond the Turmoil
Although market volatility is putting pressure on the stock, the company is firmly established. The latest Fed rate hike is good for Synchrony Financial’s investment income and more rate hikes are to come.
The company’s operations are also showing positive signs. End-of-period home and auto loan receivables rose 3.3% year-over-year in the fourth quarter. Purchase volume improved 12.6% year-over-year on consistent performance. Health and wellness loans receivable at the end of the period increased 6.9% year-on-year, while purchase volume increased 14.2%, highlighting widespread growth in all markets served. End-of-lifestyle loan receivables also improved 7.5% year-over-year in the fourth quarter, driven by strength in motorsports and music.
Increased purchase volume, new account growth and improved efficiency ratio are indicative of SYF’s strong operations. Its series of acquisitions and the renewal of its alliances help it to strengthen its digital capacities and to diversify its activities. The company had 36 partners and renewed 38 partner relationships in 2021, which will strengthen its competitive advantage. Cost reduction initiatives improve the bottom line. SYF currently has a Zacks rank of #3 (Hold).
Also, given the 12-month forward price/earnings forecast, the company is undervalued. The stock is currently trading at 6.5X forward earnings, which is below the industry average of 12.14X.
SYF’s earnings per share estimates for the first quarter have risen 2% in the past 60 days. The revenue consensus mark for the first quarter points to a 9.1% year-over-year increase. It has beaten earnings estimates in each of the past four quarters, averaging 18.1%.
Some top ranked players in the Financial Services – Miscellaneous Services space include Primis Financial Corp. (FRST – free report), Oaktree Specialty Lending Company (OCSL – free report) and Burford Capital Limited (OFFICE – Free Report), each carrying a Zacks Rank #2 (Buy). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Based in McLean, Va., Primis Financial has witnessed two upward revisions to 2022 earnings estimates in the past 60 days, with none in the opposite direction. Primis Financial has exceeded earnings estimates in three of the past four quarters and met once, averaging 27.8%. Zacks consensus estimate for FRST revenue for 2022 is set at $108.2 million.
Los Angeles, Calif.-based Oaktree Specialty’s net income estimate for the current year is pegged at 68 cents per share, indicating a 6.3% year-over-year increase. other. In the past 60 days, OCSL has seen three upward revisions to estimates and no downward movement. Oaktree Specialty has beaten earnings estimates three times in the past four quarters and met once, with an average surprise of 12.2%.
Saint Peter Port, Guernsey-based Burford Capital’s net profit projection for the current year suggests a 372.7% year-on-year increase. BUR has seen an upward revision in estimates and no downward movement in the last 60 days. Burford Capital’s current year revenue consensus mark indicates a 19.9% increase over the prior year period.