Synchrony Financial Is Still Profitable (NYSE:SYF)

Introduction Due to the novel coronavirus and resulting economic hardship, credit card companies have taken a hit over the past half year. In my recent articles on Capital One Financial (COF), Capitalize On Capital One Financial and Capital One Is Trading Lower Than Tangible Book Value, I have analyzed the […]


Due to the novel coronavirus and resulting economic hardship, credit card companies have taken a hit over the past half year. In my recent articles on Capital One Financial (COF), Capitalize On Capital One Financial and Capital One Is Trading Lower Than Tangible Book Value, I have analyzed the past two quarters’ financial results, the company’s financial health, charge-offs and forbearance, and valuation. What I found was that the bank had a good long-term outlook with a low valuation. Due to this, I am going to analyze more credit card companies to see if more bargains can be found. I recently looked at Discover (DFS) in the last article which can be read here. What I saw was that the trends were just like Capital One’s, but the value was far worse.

In this article, I will focus on Synchrony Financial (SYF) to see if it offers the same value as previously reviewed Capital One. In ensuing articles, I will cover other card-issuing banks to look for companies that offer good long-term holding value.

Company Overview

Synchrony Financial is a consumer financial services company just like Capital One and Discover. Just like the other two banks, Synchrony also has a large credit card segment consisting of 73% of total interest and fees. But there is one major difference between Synchrony and the other banks. Synchrony is a private label retail credit card issuer, which means that issued cards are store branded. This means that the cards Synchrony issues are generally only used in a single store. The top retail card partners for the bank are Walmart (NYSE:WMT), Gap (NYSE:GPS), J. C. Penney (OTCPK:JCPNQ), Lowe’s (NYSE:LOW), and PayPal (NASDAQ:PYPL).

In Sync With The Other Banks

For FY 2019 Synchrony posted interest income of $19.09 billion, up 6.13% from the prior year. Along with that provision for losses was $4.18 billion, down 24.62%. This resulted in stellar net income growth of 34.3% at $3.747 billion. The efficiency ratio and net interest margin in 2019 was 31.9% and 15.78%.

Just like the other banks Q1 and Q2 of 2020 were not great by any means. In Q1, interest income was $4.407 billion, down 7.92%. Provision for losses jumped 95.23% to $1.677 billion. This bump in provision resulted in net income of $286 million, a decrease of 74.16%. The efficiency ratio and net interest margins were relatively flat at 32.7% and 15.15%.

Q2 saw worse results as to be expected. Interest income came in at $3.83 billion, down 19.16%. Provisions for losses stayed flat from quarter to quarter at $1.673 billion but was still up by 39.65% from last year. The result was net income of $48 million, which was a decrease of 94.37% compared to last year. Both the efficiency ratio and net interest margin were worse this quarter at 36.3% and 13.35%.

Overall, for the total six-month period, Synchrony Financial posted interest income of $8.237 billion, provisions for losses of $3.35 billion, and net income of $334 million. The change from prior year is as such: -13.51%, +62.86%, and -82.96%. The efficiency ratio and net interest margin for the six months was 34.4% and 14.35%. Compared to the other banks I have looked at, Synchrony is so far the only one to post a net income, although it is significantly less than the prior year. This is attributable to the “smaller” increases in provision for losses, which is due to the fact the bank is a private label issuer with a stickier customer base. To note on that front, in 2019 the average FICO score of customers was 719, which is very solid.

Rate Talk

Charge-Off rate Delinquency Rate
February 5.3% 4.5%
March 5.6% 4.2%
April 5.9% 4.1%
May 5.1% 3.6%
June 5.1% 3.1%
July 4.8% 2.9%

Source: Seeking Alpha News

Looking at the table above, charge-off rates and delinquency rates have fallen since April. The trend for Synchrony is not as clear as it was for Capital One and Discover because these monthly rates are really not far off regular numbers. In 2019, the net charge-off rate was 5.65% and the 30+ day delinquency rate was 4.44%. The past three months have been significantly better than the 2019 totals. In Q1, the net charge-off rate and delinquency rate was 5.36% and 4.24%, while in Q2 it was 5.35% and 3.13%.

Source: Synchrony Q2 Earnings Call Presentation

So, has the forbearance been the culprit of these smooth metrics and will it spike in the future? Although the forbearance has helped smooth out the charge-off and delinquency rates I think the situation has again been handled well. The graphic above shows the same trend that I keep seeing at other banks. The initial enrollments in a program were large as many lost their jobs and had no stream of income. But over the months, as jobs have returned and the economy has opened up, people have left the programs. For Synchrony, 70% of accounts have left the program since it started and of the accounts enrolled 92% are current or less than 30 days past due.

Capital Strength

Synchrony Financial does not have to be stress-tested like the other banks but still offers really good capitalization rates. As of the most recent quarter the tier 1 capital rate is 16.3%. Along the same lines is the CET1 rate at 15.3%. These are very solid rates and are higher at least 2% in each category when compared to Capital One or Discover.


The current market price is around $26. With a book value per share of $20.36 the company is trading at 1.28x. If we take a very conservative approach and say the next two quarters will mirror the last two, the 2020 EPS would be $1.04, resulting in a P/E of 25x. If we want to hold for 5+ years, then a long-term EPS should be used. Using the 10-year average EPS of $3.01 the P/E is 8.64x. With a dividend $0.88 the yield is nice at 3.38%. Overall, this valuation is very solid considering that the company is still profitable and has a stickier customer base.


Synchrony Financial has displayed similar findings to Capital One and Discover. All three banks have seen two rough quarters but also have the charge-off, delinquency, and forbearance handled well. The difference with Synchrony is that the company is still making a profit! Because of the focus in private label cards the bank has a stickier customer and less overall credit risk. The bank is trading a little bit over book value and at a P/E of 8.64x using average 10-year EPS. This is a very solid valuation considering the bank is reporting net income and is paying out a 3.38% dividend yield. I will probably be adding Synchrony Financial to my portfolio for these reasons.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in SYF over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Next Post

Encore Capital Group Statement on Consumer Financial Protection Bureau Suit

SAN DIEGO, Sept. 09, 2020 (GLOBE NEWSWIRE) — Earlier today, the Consumer Financial Protection Bureau (CFPB) filed a lawsuit against Encore Capital Group, Inc. (NASDAQ: ECPG) and its U.S.-based subsidiaries Midland Funding, LLC, Midland Credit Management, Inc. and Asset Acceptance Capital Corp. The suit alleges that the defendants failed to […]