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A month has gone by since the last earnings report for Synchrony (SYF). Shares have lost about 13% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Synchrony Financial Q1 Earnings Beat on Purchase Volume
Synchrony Financial reported first-quarter 2021 adjusted earnings per share of $1.73, which surpassed the Zacks Consensus Estimate of $1.53 by 13.1%. The bottom line remained flat with the year-ago period.
SYF’s net interest income increased 10.2% year over year to $3,789 million for the quarter under review. It beat the Zacks Consensus Estimate of $3,764 million.
SYF reported better-than-expected first-quarter results on the back of solid growth in new accounts and a higher purchase volume. It also gained from solid contributions from all sales platforms. The results benefited from increased interest and fees on loans as well as a reduction in interest expense. Yet, the results were partially offset by steep expenses.
Synchrony Financial expects 10% loan receivables growth for 2022 due to a slowdown in payment rate and high purchase volume strength. It expects net interest margin within 15.25-15.50%. Net charge offs are expected to remain below 3.5%. SYF also expects operating expenses of $1,050 million per quarter for the year.
Q1 Results in Detail
Other income of $108 million declined 17.6% year over year owing to increased loyalty costs and reduced investment gains.
For the first quarter, total loan receivables increased 2.7% year over year to $78.9 billion. Total deposits amounted to $63.6 billion, up 1.3% year over year.
Provision for credit losses jumped 56% year over year to $521 million on the back of lower reserve release, partially offset by reduced net charge-offs.
Its total purchase volume for the first quarter jumped 16.5% year over year to $40,490 million. Period-end loan receivables increased 2.7% year over year to $78,916 million. Interest and fees on loans increased 7.4% year over year to $4,008 million, thanks to growth in average loan receivables. New accounts jumped 10% year over year to 5.5 million.
Total other expenses of $1,039 million increased 11.5% year over year for the quarter under consideration due to higher costs from marketing and business development, information processing, professional fees, employee costs and other. Efficiency ratio reached 37.2% in the quarter, marking a 110-basis point increase.
Individual Sales Platforms Update
Home & Auto period-end loan receivables grew 6.4% year over year for the first quarter to $26,532 million. Purchase volume improved 9.9% year over year to $10,260 million owing to consistent sound performances. Interest and fees on loans were up 5% year over year to $1,088 million.
Digital loan receivables rose 11.5% year over year to $21,075 million due to strong purchase volumes. Purchase volume climbed 19.9% year over year to $11,196 million on the back of robust cardholder engagement across various programs. Also, continued momentum in newly launched programs aided volumes. Interest and fees on loans increased 13.2% year over year to $1,022 million.
Diversified & Value period-end loan receivables increased 6.7% year over year to $15,166 million on the back of continued strength in purchase volume. Purchase volume improved 25.4% year over year for the quarter under review to $11,558 million due to higher client engagement. Interest and fees on loans increased 4.7% year over year to $826 million.
Health & Wellness period-end loan receivables grew 11.7% year over year to $10,407 million and purchase volume advanced 17.3% to $3,107 million, highlighting broad-based growth across all markets served. Interest and fees on loans increased 10.4% year over year to $616 million.
Lifestyle period-end loan receivables improved 7.9% year over year for the first quarter to $5,381 million. Purchase volume inched up 3.6% year over year to $1,195 million due to growth in Music and Specialty. Interest and fees on loans advanced 5.5% year over year to $191 million.
Financial Position (as of Mar 31, 2022)
SYF exited first-quarter 2022 with total assets of $95.3 billion, slipping 0.6% year over year. Total borrowings of $13.4 billion dropped 11.9% year over year for the quarter under review.
As of Mar 31, 2022, it had cash and cash equivalents of $10.5 billion, which plunged 36.6% year over year.
SYF’s balance sheet was consistently strong during the reported quarter, with total liquidity of $17.8 billion, accounting for 18.7% of its total assets.
Return on assets and return on equity were 4% and 27.5%, respectively, for the first quarter.
During the first quarter, Synchrony Financial returned capital worth $1.1 billion in the form of share buybacks of $967 million and common stock dividends of $114 million. The company currently has a share buyback authorization of $3.1 billion, thanks to the approval of a new $2.8-billion repurchase program. Further, it plans to increase its dividend by 5% to 23 cents per share in the third quarter.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month.
At this time, Synchrony has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
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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