Digital Payments And BNPL Will Shape Consumer Credit Trends

Key Takeaways

• Deepening partnerships and investment in digital capabilities position Synchrony to capitalize on digital payments growth and evolving consumer credit trends.
  
• Focus on high-growth verticals and robust capital returns strategy underpin strong potential for sustainable earnings and expansion in its addressable market.
  
• Dependence on traditional store cards, concentration risk, lagging fintech innovation, subprime focus, and rising regulatory scrutiny threaten growth, profitability, and long-term stability.

Catalysts

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

• Synchrony’s ongoing expansion and renewals of co-branded and private label partnerships with top-tier retailers and digital platforms, including new dual card launches and deepened relationships with health and wellness providers, position the company to capture higher purchase volume as digital payments and embedded finance become even more prevalent, directly supporting revenue and long-term earnings growth.
  
• The company is well positioned to benefit from the rise in consumer credit usage as Millennials and Gen Z enter their prime spending years, a demographic shift reflected in Synchrony’s continued strong engagement across generational cohorts and the success of loyalty-driven products, which should lift receivables and customer lifetime value, ultimately driving sustainable growth in net interest income and fees.
  
• Accelerating investments in digital infrastructure, proprietary underwriting (like PRISM), and advanced risk analytics are allowing Synchrony to approve more borrowers at attractive risk-adjusted returns, improve credit performance, and enhance operational efficiency, which bodes well for future net interest margin expansion and lower charge-offs, supporting higher net earnings.
  
• Synchrony’s robust capital return program, highlighted by an increased dividend and major share repurchase authorization, alongside significant excess capital generation capacity, offers the potential for meaningful EPS accretion, especially as loan growth resumes and capital intensity moderates with the phased return to targeted CET1 capital levels.
  
• Strategic focus on high-growth verticals such as healthcare financing (CareCredit) and Buy Now, Pay Later solutions expands Synchrony’s addressable market and provides avenues for outsized revenue and receivables growth, particularly as consumer preference shifts further toward flexible credit products and digital lending solutions.

Synchrony Financial Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Synchrony Financial compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Synchrony Financial's revenue will grow by 26.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 33.1% today to 19.4% in 3 years time.
• The bullish analysts expect earnings to reach $3.4 billion (and earnings per share of $10.99) by about April 2028, up from $2.9 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 10.8x on those 2028 earnings, up from 6.6x today. This future PE is greater 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

• The ongoing shift toward embedded finance and Buy Now, Pay Later models threatens to displace traditional store card usage, which is the core of Synchrony’s business, potentially shrinking its addressable market and putting long-term revenue growth at risk.
  
• Synchrony’s heavy reliance on private label and co-branded card partnerships opens it up to significant concentration risk; if major partners do not renew or terminate agreements, there could be abrupt and material declines in revenue and loan receivables.
  
• The company’s slower pace of digital and mobile innovation compared to newer fintech competitors risks making it less attractive to modern consumers, which could hamper customer acquisition and ultimately lead to reduced loan growth and net revenues.
  
• Synchrony’s focus on subprime and lower-FICO-score consumers for growth increases its vulnerability to credit losses during economic downturns, as higher charge-off rates and loan loss provisions could severely impact net margins and earnings volatility over time.
  
• Rising regulatory scrutiny and potential implementation of stricter consumer protection measures—including potential caps on interest rates and late fees—could compress net interest margins and limit Synchrony’s ability to grow revenues or maintain profitability.

Valuation

• The assumed bullish price target for Synchrony Financial is $86.8, which represents two standard deviations above the consensus price target of $63.24. This valuation is based on what can be assumed as the expectations of Synchrony Financial's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• 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 bullish analysts, you'd need to believe that by 2028, revenues will be $17.4 billion, earnings will come to $3.4 billion, and it would be trading on a PE ratio of 10.8x, assuming you use a discount rate of 8.6%.
  
• Given the current share price of $48.56, the bullish analyst price target of $86.8 is 44.1% 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.