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Nicholas Kitonyi
Nicholas Kitonyi
Articles (409)  | Author's Website |

Synchrony Financial's Pullback May Be an Opportunity to Buy

The stock is down more than 6%

January 31, 2021 | About:

Shares of credit services company Synchrony Financial Inc. (NYSE:SYF) fell more than 6% on Friday following the announcement of its fourth-quarter results.

Synchrony's stock is now down more than 15% over the last two weeks. This pullback comes at the back of a massive 210% rally between March 23 and Jan. 19. Nonetheless, Synchrony has only added 3.83% in market value over the past 12 months.

This suggests there is still room left to run in 2021. The latest pullback may be an ideal opportunity to pounce. Shares of the company also trade at an attractive price-earnings ratio of 15.43, which is relatively in line with the Peter Lynch fair value.

Highlights from recent quarterly results

Synchrony Financial posted earnings per share growth of 12.73% to $1.24, which outperformed the consensus estimate of 91 cents.

The company's top line also came in better than expected despite falling 9.18% to $3.66 billion. The average expectation for the quarter was $3.55 billion.

Synchrony's full-year revenue fell 14.3% to $14.4 billion, down from $16.8 billion reported in 2019. Earnings per share plunged 59.2% to $2.27.

The company also announced the acquisition of Allegro Credit in its bid to drive growth in health and wellness financing. Allegro Credit is one of the leading providers of point-of-sale consumer financing for audiology products, dental services and musical instruments. Allegro Credit's customers will now become part of Synchrony's health and wellness financing platform, CareCredit.

CareCredit CEO Beto Casellas said that the two "businesses are very complementary, and this acquisition will enhance CareCredit's scale of offerings and depth of expertise."

Synchrony looks to retain its leadership in digital innovation in consumer credit. This acqusiition puts it in a better position to continue serving a highly dynamic market amid changes in consumer behavior.

Valuation

From a valuation perspective, shares of Synchrony Financial are trading at a trailing price-earnings ratio of 15.43. This is relatively better than Discover Financial Services' (NYSE:DFS) equivalent of 23.33. Another close peer, FirstCash Inc. (NASDAQ:FCFS), trades at a price-earnings ratio of 22.99 while Credit Acceptance Corp.'s (NASDAQ:CACC) is 16.86.

When we factor in projected earnings growth for the next 12 months, Synchrony's forward price-earnings ratio of 7.16 is also better than Discover Financial Services' 7.92 while FirstCash and Credit Acceptance trade at relatively higher equivalent measures of 16.79 and 15.22.

In summary, shares of Synchrony Financial appear to be trading at relatively cheaper multiples when compared to close peers. The company's current stock price is also in line with the Peter Lynch value. This suggests that Synchrony's recent pullback may be an opportunity to buy.

Disclosure: No positions in the stocks mentioned.

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About the author:

Nicholas Kitonyi
Nicholas is the founder of CAGR Value. He is a financial analyst with extensive experience in investment research and stock market analysis. His analysis has been featured on several research sites.

Nicholas has solid knowledge of both U.S. and European markets. His investment style is focused on undervalued plays and growth stocks. Nicholas classifies himself as a swing trader and likes to trade GBP/USD, gold and FTSE 100, among other liquid instruments.

Visit Nicholas Kitonyi's Website


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