Renewed Partnerships With Sam's Club And JCPenney Will Strengthen Market Position

Key Takeaways

• Renewed and expanded partnerships, along with strategic acquisitions, strengthen Synchrony's market position and enhance multi-product capabilities, boosting revenue and margins.
  
• Investments in digital engagement and cost discipline are expected to drive growth through increased customer interactions, efficiency, and strong credit performance.
  
• Selective consumer spending, competition, regulatory uncertainty, and rising interest expenses could challenge Synchrony's revenue growth and earnings potential.

Catalysts

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

• Synchrony added over 45 new partners and diversified its product offerings in 2024, which is expected to drive future growth and increase revenue through expanded customer reach and flexible financing solutions.
  
• Renewals and expansions of key partnerships, such as with Sam’s Club and JCPenney, are set to strengthen Synchrony’s market position and potentially boost revenue and net margins through enhanced digital offerings like Synchrony Pay Later.
  
• Strategic acquisitions, including the Ally Lending business, position Synchrony to expand its multi-product capabilities into 2025, which can positively impact earnings through higher cross-selling opportunities and increased customer engagement.
  
• Synchrony’s investment in digital wallets and enhanced digital engagement strategies are generating greater customer interactions and reducing acquisition costs, likely contributing to future revenue growth and margin expansion as digital transactions increase.
  
• Comprehensive cost discipline alongside improved credit performance is expected to sustain high returns on tangible common equity and contribute to strong earnings growth, appealing to investors and potentially driving stock valuation upward as credit performance stabilizes.

Synchrony Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Synchrony Financial's revenue will grow by 24.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 34.5% today to 25.1% in 3 years time.
• Analysts expect earnings to reach $4.4 billion (and earnings per share of $9.92) by about January 2028, up from $3.1 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.7x on those 2028 earnings, up from 8.4x today. This future PE is lower than the current PE for the US Consumer Finance industry at 12.3x.
• Analysts expect the number of shares outstanding to grow by 4.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.15%, as per the Simply Wall St company report.

Synchrony Financial Future Earnings Per Share Growth

Risks

• Continuous impacts from credit actions and selective customer spending behavior could suppress purchase volume and loan growth, which may limit revenue growth potential.
  
• Slowing growth trends in purchase volumes and new accounts due to consumers being selective in their spending, alongside ongoing non-discretionary spending patterns, could affect Synchrony's revenue generation capability.
  
• Competition for new partnerships and program renewals requires strategic pricing, which may impact net margins if discipline is not maintained.
  
• Persistent uncertainty around regulatory changes, such as the potential CFPB late fee rule, poses a risk to earnings if Synchrony cannot offset these impacts with pricing actions.
  
• Higher interest-bearing liabilities and potential for increased interest expenses could pressure net interest income growth, affecting overall earnings.

Valuation

• The analysts have a consensus price target of $76.0 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 $48.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $17.5 billion, earnings will come to $4.4 billion, and it would be trading on a PE ratio of 9.7x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of $66.66, the analyst's price target of $76.0 is 12.3% 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.