Consumer financial services company Synchrony Financial SYF is gaining attention as its earnings estimates for 2025 and 2026 have moved higher over the past week. The company delivered a strong fourth-quarter 2024 performance, driven by increased interest and fees on loans and an expanding loan receivables portfolio. Lower expenses also benefited the results, leading to an improved efficiency ratio in the fourth quarter.

Analysts Turn Bullish on Synchrony

Wall Street analysts are turning bullish on the stock, as evident from the northward estimate revisions. Over the past seven days, the Zacks Consensus Estimate for 2025 and 2026 EPS has increased by 2 cents and 1 penny, respectively.

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The Zacks Consensus Estimate for Synchrony’s 2025 and 2026 net interest income is pegged at $18.66 billion and $19.73 billion, respectively, indicating 3.6% and 5.7% year-over-year growth. It beat earnings estimates in three of the past four quarters and missed once, with the average surprise being 2.8%.

Synchrony’s Tailwinds

Synchrony makes money from interest on credit card balances and consumer loans. With the Federal Reserve pausing its rate-cut cycle, loan yields are expected to rise, boosting net interest income, provided that credit quality remains stable.

Despite mixed consumer sentiment, spending has not slowed dramatically, particularly in sectors like travel, healthcare and large-ticket retail. A strong labor market and steady wage growth continue to support repayment capacity, helping maintain the health of Synchrony’s loan portfolio.

Strategic acquisitions and partnerships are driving Synchrony’s digital transformation and product diversification. Notably, its CareCredit platform is expanding rapidly, especially within the healthcare sector, where Synchrony is growing its network reach.

SYF’s average active accounts have consistently grown over the past four years, with total period-end loan receivables rising nearly 2% year over year in 2024 to $104.7 billion. This momentum is expected to continue in 2025. Additionally, average interest-earning assets grew 8.7% in 2024.

Synchrony’s Price Performance & Valuation

SYF stock has declined 14.3% over the past month, underperforming the industry’s 10.8% fall. Peers like American Express Company AXP and Capital One Financial Corporation COF also witnessed declines, but to a lesser extent. Meanwhile, the S&P 500 has slid 9.7% in the same period.

One-Month Price Performance Comparison – SYF, AXP, COF, Industry & S&P 500

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SYF is trading comparatively cheap at the moment from a valuation standpoint. Its forward earnings multiple of 5.64X is lower than its five-year median of 7.64X and the industry average of 13.08X. Synchrony now has a Value Score of A.

The stock also looks attractively valued relative to peers like American Express and Capital One Financial, with forward 12-month P/E of 14.74X and 9.55X, respectively.

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Shareholder Value Boosting Efforts of SYF

Synchrony’s balance sheet strength enables it to take shareholder value-boosting moves. The company returned $1.5 billion worth of capital in 2023 and $1.4 billion in 2024. It had a leftover share buyback capacity of $600 million at fourth quarter-end. SYF’s dividend yield of 2.23% is higher than American Express’ 1.40% and Capital One Financial’s 1.55%.

Should You Buy SYF Stock Now?

If economic uncertainty lingers, consumer spending could slow, raising investor concerns about rising defaults, especially among lower-income borrowers. While the Fed has paused rate cuts for now, any further signs of economic weakness could prompt reductions, potentially pressuring Synchrony’s net interest income.

Given this backdrop, a wait-and-see approach may be best for new investors. However, existing shareholders might consider holding their positions to benefit from Synchrony’s long-term growth potential and attractive valuation.

Synchrony currently carries a Zacks Rank #3 (Hold), signaling a neutral outlook. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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