Synchrony Financial (SYF) seen as attractive play amid banking turmoil, shares upgraded

March 17, 2023 12:49 PM EDT
Get Alerts SYF Hot Sheet
Price: $28.04 +0.11%

Rating Summary:
    17 Buy, 12 Hold, 3 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 9 | Down: 10 | New: 12
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Synchrony Financial (NYSE: SYF) has not been immune from the recent banking crisis, but one analyst is sticking his neck out and upgrading the stock.

Oppenheimer's Dominick Gabriele raised his rating on the stock to Outperform from Perform on Friday in a note entitled "No Guts, No Glory."

While Gabriele admits that Synchrony does have higher than peer uninsured deposits that totaled 21.6% as of their last 10-K, it also has better than industry credit migration, loan growth less than peers, small/short duration securities book, among other items.

"SYF's business is a steady mid- to high-single digit revenue grower with strong partnerships and tight underwriting within its targeted FICO bands," Gabriele comments. "The lack of securities portfolio MTM risk likely leaves SYF un-targeted MT/LT by outsized investor fears."

Further, they see SYF as a "relative downside safety play" but also see near-term opportunity.

"We still expect higher credit risk and unemployment rates than Street estimates," the analyst commented. "That said, today's ~$29 stock price reflects much of the EPS downside recession risk, in our view. We think SYF could have 10% downside yet 20% upside."

"SYF's selected portfolio reported in trust prospectus; we created vintage analysis for delinquencies, payment rates, and NCOs," it was added. "Compared to total industry Transunion data, SYF is performing better. Without heavy loan growth vs. peers throughout 2021/2022, SYF is less likely to see growth math seasoning pressuring NCO rates NT, with the potential for additive effect if/when unemployment rises. Thus, credit metrics could look better than peers."

The analyst also notes the stock's valuation has been hammered and while not immune to credit cycles, "its resilient business structure is attractive during this turmoil."

Shares of SYF are down 2% mid-day despite today's upgrade.

By Staff

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