KBW Offers Insight on Synchrony Financial, Wider Mobile Payments Market

January 29, 2019         By: Steven Anderson

Recently, Keefe, Bruyette & Woods (KBW) dropped word our way about its analysis of the fourth quarter 2018 results for Synchrony Financial, a company specializing in consumer finance operations. While the news wasn’t all good, it was enough to offer not only insight into Synchrony’s operations but also into the mobile payments market as a whole.

There was some bad news in this report. KBW actually lowered both its 2019 and 2020 earnings per share (EPS) figures for Synchrony, albeit slightly. The 2019 figures dropped from $4.25 to $4.15, and from $4.69 to $4.59. However, KBW at the same time raised its price target for Synchrony, taking it from $32 to $34. KBW notes that this reflects a 7.5x profit / expense (P/E) multiplier, and further notes that the company has renewed all of its key accounts, making it a comparatively stable operation.

A combination of factors contributed to at least somewhat good news for Synchrony, including the recent sale of its Walmart portfolio to Capital One, the aforementioned slate of account renewals, and overall trends in the consumer credit market that suggest its primary stock in trade won’t be going away any time soon. Positive guidance from management helped, and though Walmart is out of the picture for Synchrony, Sam’s Club is still in play, among others like Amazon and PayPal, to help keep the bottom line brisk.

What’s more, the macro trend in credit continued roughly as expected. An increase in provisions, brought about mainly by increases in PayPal Credit’s reserve, served to keep numbers looking good despite something of a moderating effect from wider trends.

Perhaps the best part about Synchrony going forward is its diversity of portfolio. Amazon is one thing—it’s pretty much the leading online retailer—but PayPal offers access to eBay and serves as a payments processor for a range of small businesses. Throw in Sam’s Club, one of the top bulk retailers around, and you’ve got a nice range of consumer finance products involved here. Sure, it’s retail-heavy, but that’s where the bulk of consumer finance goes.

In the end, Synchrony is looking positive going forward. While some short-term issues may be a bit of a drag on the ticket, there’s very little that will stop the consumer credit train from going forward.