Yahoo Finance Synchrony (SYF) Down 1.1% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Synchrony (SYF). Shares have lost about 1.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Synchrony due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Synchrony Financial Q4 Earnings Beat on Loan Growth
Synchrony Financial has reported fourth-quarter 2022 adjusted earnings per share of $1.26, which outpaced the Zacks Consensus Estimate by 12.5%. However, the bottom line dropped nearly 15% year over year.
The net interest income of SYF amounted to $4,106 million, which improved 7.2% year over year. The top line beat the consensus mark by 1.7% and came higher than our estimate of $3,930.2 million.
The quarterly results have benefited from a rising loan receivables portfolio paving the way for higher interest and fees on loans. A growing purchase volume, resulting from increased contributions from its five sales platforms, also contributed to the upside. However, the quarterly results have been partly offset by rising benchmark rates, elevated expenses and reduced average active accounts.
Q4 Results in Detail
Other income of Synchrony Financial plunged 82% year over year to $30 million in the fourth quarter and lagged the Zacks Consensus Estimate of $63 million. The decline was due to elevated loyalty costs and a gain on venture investment in the previous year.
Total loan receivables of SYF were $92.5 billion, which rose 14.5% year over year and beat our estimate of $89.9 billion in the quarter under review.
Total deposits of $71.7 billion advanced 15.2% year over year. Provision for credit losses more than doubled year over year to $1,201 million due to increased reserve build and elevated net charge -offs.
Synchrony Financial’s purchase volume of $47,923 million increased 1.8% year over year. Interest and fees on loans grew 13.2% year over year to $4,576 million in the fourth quarter, higher than our estimate of $4,300.2 million. Net interest margin of 15.58% deteriorated 19 basis points year over year.
New accounts totaled 6.4 million, down 13% year over year. Average active accounts of 68.4 million dipped 1% year over year.
Total other expenses of SYF increased 2.6% year over year to $1,151 million in the quarter under review due to elevated employee costs, higher technology investments and growing transaction volume. The efficiency ratio came in at 37.2%, which deteriorated 390 bps year over year.
Individual Sales Platforms' Update
Home & Auto period-end loan receivables of $29,978 million improved 11.9% year over year in the fourth quarter. The improvement came on the back of increased purchase volume and moderated payment rates. It also remains the common factor boosting loan receivables growth on the remaining four sales platforms. Purchase volume advanced 8.6% year over year to $11,860 million, riding on rising Home spending and improved prices in furniture. Interest and fees on loans of $1,264 million climbed 12.3% year over year and came higher than our estimate of $1,168.4 million.
Digital period-end loan receivables totaled $25,522 million, which rose 17.3% year over year in the quarter under review. Purchase volume grew 10% year over year to $14,794 million due to higher average active accounts and solid customer engagement. Interest and fees on loans of $1,322 million climbed 29% year over year, higher than our estimate of $1,148.9 million.
Diversified & Value period-end loan receivables of $18,617 million improved 15.8% year over year in the fourth quarter. Purchase volume amounted to $16,266 million, up 14.9% year over year on the back of solid out-of-partner spending, coupled with favorable partner performance and higher penetration. Interest and fees on loans climbed 25.2% year over year to $1,023 million, higher than our estimate of $893.1 million.
Health & Wellness period-end loan receivables advanced 18.9% year over year to $12,179 million. Purchase volume of $3,505 million grew 14.7% year over year in the quarter under review, attributable to robust active accounts growth and increased spending per active account. Interest and fees on loans increased 23.4% year over year to $744 million, higher than our estimate of $687.7 million.
Lifestyle period-end loan receivables of $5,970 million rose 9% year over year in the fourth quarter. Purchase volume increased 2.5% year over year to $1,498 million on the back of growing out-of-partner spend. Interest and fees on loans of $221 million advanced 13.9% year over year, higher than our estimate of $207.1 million.
Financial Position (as of Dec 31, 2022)
Synchrony Financial exited the fourth quarter with cash and equivalents of $10,294 million, up 23.5% from the 2021-end level.
Total assets of $104.6 billion grew 9.2% year over year. Total borrowings of $14,191 million declined 2.2% year over year.
SYF’s balance sheet was consistently strong in the reported quarter, with the total liquidity of $17,151 million accounting for 16.4% of its total assets.
Return on assets deteriorated 120 bps year over year to 2.2% in the fourth quarter, whereas return on equity deteriorated 550 bps year over year to 17.5% in the same time frame.
Capital Deployment
Synchrony Financial returned capital worth $803 million via share buybacks of $700 million and common stock dividends of $103 million in the fourth quarter. It had a leftover share buyback capacity of $700 million at the end of December 2022.
Full-Year Update
In 2022, Synchrony Financial’s adjusted earnings per share of $6.15 tumbled 16.2% from the 2021 figure. The net interest income of SYF grew 9.7% year over year to $15,625 million. Purchase volume of $180.2 billion improved 8.6% year over year.
2023 Guidance
For 2023, Synchrony Financial anticipates loan receivables growth of 8-10%. Notably, in 2022, the metric recorded 14.5% year-over-year growth.
Net interest margin is forecast to be 15-15.25%, the mid-point of which indicates a 51-bps deterioration from the 2022 reported figure. Net charge-offs are estimated to be 4.75-5%, which indicates an increase from the 2022 reported figure of 3.00%
Management expects quarterly operating expenses of $1,125 million for 2023.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month.
VGM Scores
At this time, Synchrony has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Synchrony has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Synchrony Financial (SYF) : Free Stock Analysis Report
