Partnerships And Dual Cards Will Open New Markets

Key Takeaways

• Strategic partnerships and new card offerings could drive revenue growth by enhancing customer loyalty and increasing purchase volume.
  
• Strong capital position supports shareholder value through share repurchases and dividends, while data analytics aids in risk management and margin optimization.
  
• Decreased revenue and purchase volume, combined with declining liquidity yields and external uncertainties, may lead to stunted growth and compressed margins for Synchrony Financial.

Catalysts

Operates as a consumer financial services company in the United States.

• Synchrony Financial's strategic partnerships and renewals with companies such as Sun Country Airlines, Ashley, and Texas A&M Veterinary Hospital may drive future revenue growth by expanding access to flexible financing solutions and enhancing customer loyalty programs.
  
• The introduction and expansion of dual and co-branded cards, including the CareCredit dual card, represent potential revenue catalysts through increased purchase volume and customer engagement, which could enhance overall earnings.
  
• Synchrony's robust data analytics and sophisticated underwriting systems support risk management and are likely to enhance net margins by optimizing credit performance and minimizing charge-offs through improved customer insights and credit actions.
  
• The company's new share repurchase authorization and dividend increase indicate a strong capital position, which may lead to increased earnings per share and shareholder value in the future.
  
• Synchrony's focus on optimizing liquidity and capital management, along with a strategic emphasis on expanding its health and wellness platform, suggests potential for sustainable growth in loan receivables and net interest income across its diversified portfolio.

Synchrony Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Synchrony Financial's revenue will grow by 24.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 33.1% today to 19.5% in 3 years time.
• Analysts expect earnings to reach $3.2 billion (and earnings per share of $8.83) by about April 2028, up from $2.9 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $2.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.2x on those 2028 earnings, up from 6.6x today. This future PE is lower than the current PE for the US Consumer Finance industry at 9.7x.
• Analysts expect the number of shares outstanding to decline by 5.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.56%, as per the Simply Wall St company report.

Synchrony Financial Future Earnings Per Share Growth

Risks

• Synchrony Financial's net revenue decreased by 23% year-over-year, primarily due to the impact of the Pets Best gain on sale in the prior year, which could impact future earnings negatively if similar one-time gains are not realized again.
  
• Purchase volume decreased by 4% year-over-year and active accounts show decreased trends, impacted by previous credit actions and selective customer spending, potentially stunting revenue growth.
  
• Ending loan receivables declined by 2% due to lower purchase volume, which might lead to a decrease in interest income and subsequent earnings if not offset by new partner engagements or credit adjustments.
  
• The liquidity portfolio yield declined by 88 basis points due to lower benchmark rates, impacting net interest margins, which can compress margins further if interest rate environments remain low.
  
• With tariffs and governmental uncertainties affecting consumer confidence and partner strategies, there is a risk that spending could be adversely affected, leading to potential revenue fluctuations and impacting net margins.

Valuation

• The analysts have a consensus price target of $63.238 for Synchrony Financial based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $88.0, and the most bearish reporting a price target of just $42.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $16.6 billion, earnings will come to $3.2 billion, and it would be trading on a PE ratio of 8.2x, assuming you use a discount rate of 8.6%.
  
• Given the current share price of $48.56, the analyst price target of $63.24 is 23.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.