![]() However, in the event of a deeper recession, Synchrony remains well-capitalized with a 14.3% Common Equity Tier 1 capital ratio and 20.1% liquid assets including undrawn credit facilities. I will show below that earnings should decrease only slightly in 2023 with even with planned declines in credit quality. At $35, the stock has is still cheap with a P/E of 5.7, up only slightly from my estimate of 5.5 last quarter. The declines in credit quality are offset by decreases in RSA's and share count while net interest income and costs remain stable. This would reduce share count by another 9.5%.Īs you will see in the model below, I now expect Synchrony to earn $6.14 per share this year. Synchrony still has $1.4 billion of buybacks authorized through 2Q 2023. Synchrony has now reduced share count by 13% since the end of 2021. The bank continues to have a huge buyback program. Synchrony remains conservative with their dividend, increasing it by only $0.01 this past quarter to $0.23, which is a 2.6% yield thanks to the recent recovery in the share price. The bank also continues to hold the line on operating expenses as a percent of interest income in spite of inflation. RSA's have averaged 5.27% of loan receivables year-to-date and the company lowered the full year RSA forecast to 5.1%, implying 4.5% in 4Q. Synchrony Financial 3Q 2022 Earnings ReleaseĪs I have stated in previous articles, when charge offs increase, the impact on Synchrony is partially mitigated by the reduction in incentive payments given back to card program partners known as Retailer Share Arrangements. As I will show in the model below, this should result in only a minimal decline in earnings compared to 2022. Synchrony expects charge-offs to reach this level by the end of 2023. While delinquency and charge-off rates continue to trend higher, they are nowhere near the 5.5% charge-off rate that the company saw in 2019. Updated survey results noted on the earnings call indicate that the percentage of consumers who have spent the entire amount is now 40%, up only slightly from 38% last quarter. Employment remains strong and many consumers have still not spent all their government stimulus from 2021. The company even noted this trend reversing a bit as gas prices have come down from peak levels. Inflation has caused a shift from discretionary to essential spending but has not resulted in lower spending overall. Synchrony Financial 3Q 2022 Earnings Slides The company also grew the number of accounts on a core basis, almost offsetting the loss of 5.9 million accounts in the Gap ( GPS ) and BP ( BP ) programs that were sold earlier this year. ![]() Purchase volume is up more than inflation in most of Synchrony's segments and growth accelerated from last quarter in Digital, Health & Wellness, and Lifestyle. What I said then remains true: consumers are still spending. Since I reviewed Synchrony Financial ( NYSE: SYF) last quarter, the stock has stabilized, up 6% compared to a slight loss for the S&P 500 ( SPY). Richard Drury The Consumer Is Still Spending
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