The fintech (financial technology) industry is transforming the global financial sector, with the volume of digital payments accelerating since the onset of the COVID-19 pandemic. It was no surprise that fintech stocks were among the top performers in 2020. The digitization of major service industries has been triggering a rapid adoption of remote financial transactions, a trend from which major players in the fintech space are benefiting.
A case in point is Connecticut-based consumer financial services company Synchrony Financial (SYF). SYF was spun off from GE Capital in 2014 with an original focus on credit cards for retailers. It provides back-end financial services for many store-branded credit cards. However, the company has expanded since then and delivers a wide range of specialized financing programs as well as innovative consumer banking products across key industries that include digital, retail, home, auto, travel, health and pet.
Shares of SYF registered a 2% intraday gain yesterday to close the session at $47.70. The stock has surged 37.4% so far this year versus the broader market S&P 500’s 11.7% gains. In fact, SYF has returned 17.1% over the past month alone.
Let’s take a closer look at the factors that could influence SYF’s performance in the near term:
Recent Corporate Actions
On May 24, SYF signed a multi-year extension of its strategic partnership with CITGO Petroleum Corporation, a U.S.-based refiner, transporter, and marketer of transportation fuels, lubricants, and petrochemicals. As part of the deal, SYF will continue to manage and service the CITGO Rewards Credit Card Program and expand the program to include the benefits of Synchrony Car Care. Furthermore, SYF has integrated its health financing platform, CareCredit, into a leading dental solution, Planet DDS Denticon practice management software. The integration is designed to help practice teams save time, increase productivity and provide patients with a financing option.
Furthermore, SYF’s board of directors this week approved a share repurchase program of up to $2.9 billion to take place through the end of second quarter next year. The program surpasses its previous buyback initiative, which was announced in January. This, coupled with SYF’s intention to maintain its quarterly cash dividend going forward, reflects greater management confidence in the company's financials.
Impressive Financials
In the first quarter of 2021, SYF’s total interest income slipped 6.3% sequentially to $3.74 billion, due mainly to lower finance charges and late fees. However, its retailer share arrangements increased to $1 billion, reflecting an improvement in net charge-offs. In fact, its provision for credit losses decreased $1.3 billion, or 80% year-over-year, to $334 million, on the back of improving credit.
The company renewed 10 programs, including American Eagle, Ashley HomeStores LTD, CITGO, and Phillips 66, during the quarter and added 10 new programs, including Prime Healthcare, Mercyhealth, Emory Healthcare, and Southern Veterinary Partners to the CareCredit network. Notably, its average active accounts remained relatively stable compared to the prior quarter. The company’s EPS came in at $1.73, rising 39.5% sequentially.
Post-Pandemic Growth
The fintech space garnered unprecedented prominence in the wake of the pandemic as people shifted to remote transactions in fear of encountering the virus. As a result, the e-commerce boom and digitization of major service industries have triggered rapid adoption of remote financial transactions. Hence, experts believe that behavioral changes induced by the pandemic, such as online shopping and cashless payments, are here to stay and will continue to propel fintech’s growth. As such, investments in technology-based solutions by banks and other financial institutions have been on the rise. In addition, infrastructure-based technology and APIs are further boosting and reshaping the future of fintech.
Robust Analyst Outlook
According to SYF management, the pandemic continued to impact its business in the first quarter, primarily with slower loan growth. However, analyst sentiments, which give a good sense of a stock’s future price movement, are positive for SYF. Its average broker rating of 1.5 indicates favorable analyst sentiment. Of the 19 Wall Street analysts that rated the stock, 16 have given it either a Strong Buy or a Buy rating.
Analysts further expect SYF’s current year revenue to increase to $14.34 billion. The company’s consensus EPS estimate for the year is $5.63, which indicates a 136.6% improvement over 2020.
POWR Ratings Indicate Promising Prospects
SYF has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. Among these categories, SYF has a B Momentum Grade, which is consistent with its market beating returns over the past year. Shares of SYF have returned 123.4% over this period compared to S&P 500’s 38.4% gains.
SYF has a B grade for Sentiment, indicating greater analyst confidence. The stock has a B grade for Quality also, reflecting the company’s sound fundamentals and strong financials. In the B-rated, 51-stock Consumer Financial Services industry, SYF is ranked #4.
Beyond what we’ve stated above, we have also given SYF grades for Growth, Value, and Stability. Get all the SYF ratings here.
Bottom Line
SFY delivers its services to a wide array of industries. But much of its business is with the retail sector, where it helps its partners to grow sales. So, SFY was impacted by the widespread store shutdowns during the worst of the coronavirus pandemic last year. However, as the world is gradually returning to the old normal, the retail space is recuperating to pre-pandemic levels on the back of rising consumer spending and the economic recovery this year.
SFY has been enhancing its capabilities and diversifying its business profile over the past few years through a blend of organic and inorganic approaches. The company’s strategic investments in its network expansion, especially its CareCredit network, and its accelerating product upgrade initiatives might keep its earnings momentum alive going forward. Hence, we think SYF should continue riding the fintech wave.
SYF shares were trading at $47.34 per share on Friday morning, down $0.36 (-0.75%). Year-to-date, SYF has gained 37.91%, versus a 12.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies.
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