Synchrony Financial / CEO is a SJU Grad

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Synchrony Stock Likely to Post Further Gains

The credit-card issuer should benefit from higher rates, tax cuts, and less regulation.




Feb. 18, 2017 / BARRONS

Follow Up:

Shares of credit-card issuer Synchrony Financial have returned nearly 40% since we asserted a year ago that they were undervalued (“Synchrony: A Growing Credit-Card Powerhouse,” Feb. 20).

But the stock (ticker: SYF) still has room to run, thanks to strong operating momentum and a healthy U.S. consumer.

Last June, the company announced that it was expecting a rise of 0.2 to 0.3 percentage point in its net charge-off rate over the next 12 months. That triggered a 13% selloff the same day. Still, its net charge-off rate as of June 30 was 4.49%, about where it has been for a few years. The stock rallied off those lows, helped by financial stocks’ surge following the presidential election. The company, which specializes in private-label cards for clients such as Amazon.com (AMZN) and Wal-Mart Stores (WMT), has beaten the consensus earnings estimates in three straight quarters.

The stock still isn’t all that expensive, trading at 12.1 times the $3.03 that analysts expect Synchrony to make this year, versus the median 11.6 times forward earnings it has fetched since its 2014 spinoff from General Electric (GE).


Synchrony has benefited from investors’ anticipation of less regulation, higher interest rates, and tax cuts that would help it more than some rivals because of its U.S. focus. It initiated a quarterly dividend of 13 cents a share last year, and repurchased $238 million in stock in the fourth quarter.

Bill Carcache, a Nomura Instinet analyst, has a Buy rating on the shares, with a $44 price target, about 20% above their recent quote of $36.76. That might be hard to hit, given the stock’s fast run-up, but a 10% gain looks very reachable.

-- Lawrence Strauss
 
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