Synchrony Financial (SYF)
Summary
Synchrony is a financial services company, partnering with retailers to provide credit cards and other consumer financing methods
They have built a powerful portfolio of receivables, diversified across many different retail industries
Fundamental highlights include strong return on equity and a discount valuation compared to its peers
Concerns include the highly cyclical nature of the financial and credit industry
Business Overview
Synchrony Financial is a financial services company, offering a wide array of consumer-facing products from banking, CDs, “pay-later” options and more. The focus of my research, and why I found them so compelling, is their credit card strategy. Synchrony underwrites credit cards (just like Visa, American Express, or Mastercard) but their strategy focuses on partnering with retailers to provide their store-specific cards. You know, the ones you always have to say no to at check-out.
Synchrony focuses on partnering with high-quality retailers. In doing so, they have a highly diversified portfolio of loans receivable: partners in furniture, automotive, health/wellness, lifestyle, and more. This allows them to tap into the success of other markets, and have a cushion when one is under-performing. Some of their partners across industries can be seen below.
Investment Thesis
Solid fundamentals include:
8% YOY increase in loans receivable (US$102B)
2% YOY increase in active accounts
10% YOY increase in interest income
Even with these fundamentals and a year of positive price momentum, Synchrony is still at a discount to it’s peers.
P/E (GAAP, TTM) is 47% below sector median
PEG (GAAP, TTM) is 57% below sector median
Concerns:
Financials operate in a highly cyclical area. Macroeconomic headwinds could have a serious impact on future growth, leading to rising credit card delinquency rates- a trend we have seen in 2024. Creditors also face serious scrutiny from governments, facing regulations on fees and other important revenue drivers.
