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Why You Must Retain Synchrony Financial in Your Portfolio Now

Zacks Equity Research

Synchrony Financial SYF is well-poised for growth on the back of consistent revenues and strategic initiatives.

Estimates for the company have been revised upward over the past 60 days, reflecting brokers’ confidence in the stock. It has witnessed its 2019 and 2020 earnings estimates move 1.7% and 0.6% north, respectively over the past 60 days.

The company has an encouraging earnings surprise history, having outshined the Zacks Consensus Estimate in all the trailing four quarters, the average being 14.2%. This also adds credence to the company’s operational efficiency.

The stock carries an impressive VGM Score of A. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.  

The company has been witnessing an uptick in revenues since 2013 on the back of a stronger interest income, which sees a CAGR of 9.7% (2013-2018). Investments in expanding the CareCredit network and boosting digital capabilities have also contributed to its top line. A steady improvement in revenues is primarily favored by the company’s rapidly-growing interest income while its inorganic growth strategies are likely to pave the way for long-term growth.

Synchrony has been making concerted efforts in effecting strategic buyouts to fuel its business growth. Its series of acquisitions and renewal of alliances have helped it enhance its digital capabilities and diversify its business. All these initiatives aim at bringing diversification to the company’s business lines, which in turn, drive its competitive edge.

The company’s solid retail card platform also deserves a special mention. Retail Card 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. This segment has been contributing to the company’s top line over the last several quarters on the back of purchase volume growth and an increase in period-end loan receivables. We believe that this platform is likely to witness further revenue growth going forward, thereby aiding the company's top line.

However, the company has been witnessing a steep rise in expenses since its inception. It has been taking up several organic and inorganic strategies with an expansion motive, which in turn, has resulted into higher marketing expenses and acquisition-related costs.

Alongside, continuous investments in digitization have induced rising expenditures that will weigh on the company’s bottom line before contributing to its top-line growth. Elevated costs persist to be a concern for the company.

The Zacks Consensus Estimate for current-year earnings per share is pegged at $4.28, indicating an increase of 14.4% on 4.3% higher revenues of $16.88 billion from the prior-year reported figures.

For 2020, the consensus mark for earnings per share stands at $4.74, suggesting a 10.9% rise from the year-ago reported number.

The long-term earnings growth rate of the company is projected at 7.7%.

Shares of this Zacks Rank #3 (Hold) company have lost nearly 2.5% in a year’s time, narrower than the industry’s decline of 4.7%.


Stocks to Consider

Investors interested in the same space may take a look at some better-ranked stocks like Visa Inc. V, PayPal Holdings, Inc. PYPL and Global Payments Inc. GPN, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Visa is a payments technology company worldwide. The stock managed to pull off average four-quarter positive surprise of 5.4%.

PayPal works as a technology platform and digital payments company. It delivered average four-quarter positive surprise of 7.6%.

Global Payments offers payment technology and software solutions and it came up with average four-quarter beat of 3.1%.

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