Synchrony (SYF) Up 14.4% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Synchrony (SYF). Shares have added about 14.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Synchrony due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Synchrony Shines in Q3: Expense Management Drives Earnings Beat

Synchrony reported third-quarter 2024 adjusted earnings per share (EPS) of $1.94, which comfortably beat the Zacks Consensus Estimate of $1.77. The bottom line also increased from $1.48 per share a year ago.

Net interest income improved 5.7% year over year to $4.6 billion in the third quarter. Also, it beat the consensus mark by 2.1%.

The strong quarterly results were supported by increased interest and fees on loans and an expanding loan receivables portfolio. While expenses did increase, they were managed well enough to not offset the revenue gains substantially. As such, the efficiency ratio improved in the third quarter.

Despite consumer spending becoming selective, its diversified portfolio continues to augment growing demand from customers. The positives were partially offset by lower purchase volume.

Q3 Results in Detail

Retailer share arrangements of Synchrony fell 6.6% year over year to $914 million due to increased net charge-offs. Total loan receivables of Synchrony grew 4% year over year to $102.2 billion but missed the consensus mark of $103.3 billion in the quarter under review.

Total deposits were $82.3 billion, which rose 5.4% year over year, but missed our estimate. Provision for credit losses increased 7.3% year over year to $1.6 billion due to increased net charge-offs, partly offset by lower reserve build, 2.5% higher than our estimate.

The purchase volume of Synchrony declined 4% year over year to $45 billion in the third quarter because of selective consumer spending and credit actions. Also, the figure missed the consensus estimate of $46.5 billion.

Interest and fees on loans of $5.5 billion improved 7% year over year on the back of a growing average loan receivables portfolio. Net interest margin deteriorated 32 basis points (bps) year over year to 15.04% but came above the Zacks Consensus Estimate of 14.46%.

New accounts of 4.7 million slipped 18% year over year. Average active accounts remained stable at 70.4 million in the third quarter.

Total other expenses of Synchrony increased 3% year over year to $1.19 billion but remained below our estimate of $1.21 billion. The efficiency ratio of 31.2% improved 200 bps year over year in the quarter under review and remained below the consensus mark of 32.78%.

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