On Wednesday, JPMorgan updated its outlook on Synchrony Financial (NYSE: NYSE:), increasing the price target to $59.00 from the previous $53.00 while maintaining a Neutral rating on the stock. The adjustment follows Synchrony Financial’s third-quarter 2024 earnings report, which revealed an adjusted diluted earnings per share (EPS) of $1.94. This figure surpassed both the JPMorgan estimate of $1.71 and the consensus estimate of $1.81, attributed to higher-than-anticipated interest and fees, other income, and lower-than-expected RSA expense.
Synchrony Financial has also revised its full-year 2024 EPS guidance upwards to a range of $8.45-$8.55, compared to the earlier forecast of $7.60-$7.80. This update is based on the assumption that the late fee rule will not be implemented in FY24. In response, JPMorgan has increased its own diluted EPS estimate for Synchrony Financial in 2024 to $8.51, which includes a $1.96 gain from the sale of Pets Best in the first quarter of 2024.
The primary concern for Synchrony Financial, as highlighted by the management, is the timing and outcome of the Consumer Financial Protection Bureau (CFPB) late fee rule litigation. The management is of the view that the rule will not come into effect in 2024, although they do expect it to be eventually implemented, albeit with uncertain timing. The company continues to navigate uncertainties related to the litigation, potential shifts in consumer behavior due to the rule change, and the impact of the previously implemented PPPCs.
Management has signaled that it will not reverse its mitigating actions unless there is substantial certainty that the late fee rule will not be reintroduced in the future. Reflecting these considerations, JPMorgan’s December 2025 price target of $59 is based on 7.75 times its 2026 adjusted EPS estimate of $7.61, suggesting a 7.2% annualized total return.
In other recent news, Synchrony Financial reported net earnings of $789 million, or $1.94 per diluted share, in its Q3 2024 earnings call. The company witnessed a 10% increase in net revenue, reaching $3.8 billion. Despite facing challenges in consumer spending and credit performance, Synchrony added 4.7 million new accounts and generated $45 billion in purchase volume. However, the company anticipates a low single-digit decline in purchase volume for Q4.
Synchrony’s provision for credit losses rose to $1.6 billion due to higher net charge-offs, and the company projects fully diluted earnings per share between $8.45 and $8.55 for the full year 2024. The firm aims to achieve a charge-off rate between 5.5% and 6% in 2025.
In response to potential regulatory changes, Synchrony is prepared for the implementation of the Consumer Financial Protection Bureau’s late fee rule. The company remains focused on long-term risk-adjusted returns and plans to adapt strategies based on portfolio performance and market conditions.
InvestingPro Insights
Synchrony Financial’s recent performance and JPMorgan’s updated outlook are further supported by real-time data from InvestingPro. The company’s P/E ratio of 7.9 and adjusted P/E ratio of 6.97 for the last twelve months as of Q2 2024 indicate that the stock is trading at a relatively low valuation compared to its earnings. This aligns with an InvestingPro Tip suggesting that SYF is “trading at a low P/E ratio relative to near-term earnings growth.”
The company’s strong financial position is evident from its revenue growth of 14.02% over the last twelve months and an impressive operating income margin of 48.48%. These figures support JPMorgan’s positive revision of Synchrony’s EPS guidance for 2024.
InvestingPro Tips also highlight that Synchrony Financial has maintained dividend payments for 9 consecutive years, with a current dividend yield of 1.88%. This demonstrates the company’s commitment to returning value to shareholders, even as it navigates regulatory uncertainties.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Synchrony Financial, providing deeper insights into the company’s financial health and market position.
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