Synchrony Financial (SYF) Bundle
Understanding Synchrony Financial (SYF) Revenue Streams
Understanding Synchrony Financial’s Revenue Streams
The revenue streams for Synchrony Financial (SYF) are primarily derived from interest income on loans, retailer share arrangements, and other income sources.
Breakdown of Primary Revenue Sources
- Interest Income: For the nine months ended September 30, 2024, total interest income was $16.9 billion, an increase from $15.2 billion in the same period of 2023.
- Retailer Share Arrangements: These arrangements generated $2.5 billion for the nine months ended September 30, 2024, down from $2.8 billion for the same period in 2023.
- Other Income: Other income reached $1.4 billion for the nine months ended September 30, 2024, compared to $218 million for the same period in 2023.
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate for total revenue from Q3 2023 to Q3 2024 indicates a general upward trend, with significant contributions from interest income and other income streams.
| Revenue Source | 2023 (9 Months) | 2024 (9 Months) | Year-over-Year Growth (%) |
|---|---|---|---|
| Interest Income | $15.2 billion | $16.9 billion | 11.7% |
| Retailer Share Arrangements | $2.8 billion | $2.5 billion | -10.6% |
| Other Income | $218 million | $1.4 billion | 540.8% |
Contribution of Different Business Segments to Overall Revenue
As of September 30, 2024, the contribution of various business segments is as follows:
- Credit Cards: Total loan receivables stood at $94 billion.
- Consumer Installment Loans: Loan receivables were $6.1 billion.
- Commercial Credit Products: Loan receivables totaled $1.9 billion.
Analysis of Any Significant Changes in Revenue Streams
Significant changes include:
- Interest and fees on loans increased by 10.5% year-over-year for the nine months ended September 30, 2024.
- Retailer share arrangements decreased significantly, reflecting a 10.6% decline.
- Other income surged due to a $1.1 billion gain from the sale of Pets Best, contributing to a 540.8% increase in overall other income.
| Segment | Q3 2023 Revenue | Q3 2024 Revenue | Change (%) |
|---|---|---|---|
| Credit Cards | $4.4 billion | $4.7 billion | 6.8% |
| Consumer Installment Loans | $2.4 billion | $2.7 billion | 12.5% |
| Commercial Credit Products | $0.5 billion | $0.6 billion | 20.0% |
A Deep Dive into Synchrony Financial (SYF) Profitability
A Deep Dive into Synchrony Financial's Profitability
Gross Profit Margin: For the three months ended September 30, 2024, the gross profit was approximately $4.6 billion, resulting in a gross profit margin of approximately 15.04%. In comparison, for the same period in 2023, the gross profit margin was 15.36%.
Operating Profit Margin: The operating profit for the three months ended September 30, 2024, was $1.028 billion, leading to an operating profit margin of approximately 31.2%. This shows an improvement compared to 33.2% in the same quarter of 2023.
Net Profit Margin: The net earnings for the three months ended September 30, 2024, increased to $789 million from $628 million in the same quarter of 2023, resulting in a net profit margin of approximately 20.2% versus 18.7% in 2023.
| Metric | Q3 2024 | Q3 2023 |
|---|---|---|
| Gross Profit | $4.6 billion | $4.5 billion |
| Gross Profit Margin | 15.04% | 15.36% |
| Operating Profit | $1.028 billion | $833 million |
| Operating Profit Margin | 31.2% | 33.2% |
| Net Earnings | $789 million | $628 million |
| Net Profit Margin | 20.2% | 18.7% |
Trends in Profitability Over Time: The net earnings for the nine months ended September 30, 2024, rose to $2.7 billion, compared to $1.8 billion for the same period in 2023, indicating a growth trend. The net profit margin for the nine months also improved, moving from 17.2% in 2023 to 19.1% in 2024.
Comparison of Profitability Ratios with Industry Averages: The average net profit margin for the financial services industry is approximately 15%. Synchrony Financial's net profit margin of 20.2% exceeds the industry average, demonstrating a competitive edge in profitability.
Operational Efficiency: The efficiency ratio for the three months ended September 30, 2024, was 31.2%, an improvement from 33.2% in the same period of 2023. This indicates better cost management and operational efficiency. The return on assets (ROA) was 2.6% for Q3 2024 compared to 2.3% in Q3 2023, while the return on equity (ROE) improved to 19.8% from 18.1%.
| Metric | Q3 2024 | Q3 2023 |
|---|---|---|
| Efficiency Ratio | 31.2% | 33.2% |
| Return on Assets (ROA) | 2.6% | 2.3% |
| Return on Equity (ROE) | 19.8% | 18.1% |
Debt vs. Equity: How Synchrony Financial (SYF) Finances Its Growth
Debt vs. Equity: How Synchrony Financial Finances Its Growth
Debt Levels
As of September 30, 2024, Synchrony Financial reported total liabilities of $104.1 billion, which includes both long-term and short-term debt. The composition of these liabilities is as follows:
| Type of Liability | Amount ($ in millions) |
|---|---|
| Interest-bearing deposit accounts | 82,100 |
| Borrowings of consolidated securitization entities | 7,817 |
| Senior and subordinated unsecured notes | 7,968 |
| Total Interest-bearing Liabilities | 97,885 |
| Total Non-interest-bearing Liabilities | 5,689 |
| Total Liabilities | 104,111 |
The total equity as of the same date stood at $15.8 billion.
Debt-to-Equity Ratio
The debt-to-equity ratio is a critical metric for assessing the financial leverage of a company. For Synchrony Financial, the debt-to-equity ratio is calculated as follows:
Debt-to-Equity Ratio = Total Liabilities / Total Equity = $104.1 billion / $15.8 billion = 6.59
This ratio is significantly higher than the industry average, which typically ranges from 1.0 to 2.0, indicating that Synchrony Financial is heavily reliant on debt financing compared to its equity base.
Recent Debt Issuances and Credit Ratings
In February 2024, Synchrony Financial issued $500 million of Series B 8.250% fixed rate reset non-cumulative perpetual preferred stock. The company also has various senior unsecured notes outstanding with an average interest rate of 4.91% as of September 30, 2024. The credit ratings from major agencies are as follows:
| Rating Agency | Credit Rating |
|---|---|
| Moody's | Baa2 |
| Standard & Poor's | BBB |
| Fitch Ratings | BBB |
Debt Refinancing Activity
During the nine months ended September 30, 2024, Synchrony Financial made repayments totaling $1.85 billion of senior unsecured notes. The company maintains a proactive approach to managing its debt portfolio, ensuring compliance with covenants associated with its senior and subordinated unsecured notes.
Balancing Debt Financing and Equity Funding
Synchrony Financial's strategy involves a careful balance between debt financing and equity funding. The company has utilized its equity base to support its capital structure while relying on debt to fund growth initiatives. The current equity to assets ratio stands at 13.25%, indicating a substantial proportion of assets are financed through debt. This strategy allows the company to leverage low interest rates while maintaining adequate capital for operations and growth.
The company also repurchased $900 million of common stock as part of its share repurchase program in 2024, indicating a commitment to returning value to shareholders while managing debt levels.
Assessing Synchrony Financial (SYF) Liquidity
Assessing Synchrony Financial's Liquidity
Current Ratio: As of September 30, 2024, the current ratio was 1.12, indicating that the company has $1.12 in current assets for every $1.00 in current liabilities.
Quick Ratio: The quick ratio stood at 1.10, which excludes inventory from current assets, demonstrating a solid position to meet short-term obligations without relying on inventory sales.
Working Capital Trends: The working capital increased to $2.5 billion as of September 30, 2024, compared to $2.0 billion at December 31, 2023. This upward trend in working capital reflects improved liquidity management and operational efficiency.
Cash Flow Statements Overview
Operating Cash Flow: The cash flow from operating activities for the nine months ended September 30, 2024, was $7.495 billion, compared to $6.276 billion for the same period in 2023.
Investing Cash Flow: Cash used in investing activities was $(3.940 billion) for the nine months ended September 30, 2024, reflecting increased investments in loan receivables.
Financing Cash Flow: Cash flows from financing activities showed a net increase of $1.120 billion in deposits during the same period, indicating strong funding support.
Liquidity Concerns or Strengths
The liquidity position remains strong with $19.7 billion in liquid assets as of September 30, 2024, up from $16.8 billion at December 31, 2023. The company has access to $11.4 billion through the Federal Reserve's discount window and $2.7 billion in undrawn capacity under securitized financings. These factors mitigate potential liquidity concerns in a volatile market environment.
| Metric | September 30, 2024 | December 31, 2023 |
|---|---|---|
| Current Ratio | 1.12 | 1.08 |
| Quick Ratio | 1.10 | 1.05 |
| Working Capital | $2.5 billion | $2.0 billion |
| Operating Cash Flow | $7.495 billion | $6.276 billion |
| Investing Cash Flow | $(3.940 billion) | $(7.065 billion) |
| Financing Cash Flow | $1.120 billion | $6.354 billion |
| Liquid Assets | $19.7 billion | $16.8 billion |
| Available Borrowing Capacity | $11.4 billion | $10.0 billion |
Is Synchrony Financial (SYF) Overvalued or Undervalued?
Valuation Analysis
As of September 30, 2024, the valuation metrics for the company are as follows:
- Price-to-Earnings (P/E) Ratio: 9.94
- Price-to-Book (P/B) Ratio: 1.43
- Enterprise Value-to-EBITDA (EV/EBITDA): 6.94
The stock price trends over the last 12 months indicate a significant fluctuation:
| Month | Stock Price | % Change |
|---|---|---|
| September 2023 | $30.25 | - |
| December 2023 | $31.75 | +4.93% |
| March 2024 | $28.50 | -10.00% |
| June 2024 | $32.00 | +12.28% |
| September 2024 | $29.50 | -7.81% |
The dividend yield and payout ratios are as follows:
- Dividend Yield: 3.4%
- Payout Ratio: 16.9%
Analyst consensus on stock valuation indicates a mixed outlook:
- Buy: 5 analysts
- Hold: 10 analysts
- Sell: 2 analysts
The financial performance highlights include:
- Net Earnings (Q3 2024): $789 million
- Earnings per Share (EPS): $1.94 (diluted)
- Total Equity: $15.318 billion
- Total Assets: $119.429 billion
Key performance ratios include:
- Return on Assets (ROA): 2.6%
- Return on Equity (ROE): 19.8%
- Efficiency Ratio: 31.2%
The following table summarizes the key valuation metrics:
| Metric | Value |
|---|---|
| P/E Ratio | 9.94 |
| P/B Ratio | 1.43 |
| EV/EBITDA | 6.94 |
| Dividend Yield | 3.4% |
| Payout Ratio | 16.9% |
The valuation analysis indicates a competitive position within the market, with various metrics suggesting the stock may be undervalued relative to its earnings and book value.
Key Risks Facing Synchrony Financial (SYF)
Key Risks Facing Synchrony Financial
The financial landscape for Synchrony Financial is shaped by various internal and external risk factors that can impact its financial health. Below is a detailed breakdown of these risks.
Overview of Internal and External Risks
- Industry Competition: The competitive landscape in the financial services sector remains intense, with numerous players vying for market share, particularly in consumer financing.
- Regulatory Changes: The company is now subject to the Federal Reserve Board's formal capital plan submission requirements, which may impose additional compliance costs and operational constraints.
- Market Conditions: Fluctuations in market conditions, including economic downturns, can affect consumer spending and payment behaviors, leading to higher delinquency rates and charge-offs.
Operational Risks
Operational risks are significant for Synchrony, particularly in relation to customer payment behaviors and operational efficiencies.
- Delinquency Rates: The over-30 day loan delinquency rate increased to 4.78% as of September 30, 2024, compared to 4.40% a year earlier.
- Net Charge-Offs: The net charge-off rate rose to 6.06% for the third quarter of 2024, up from 4.56% in the same period of 2023.
Financial Risks
Financial risks include credit risks and fluctuations in interest rates.
- Provision for Credit Losses: The provision for credit losses increased by $109 million, or 7.3%, for the three months ended September 30, 2024.
- Interest Expense: Interest expense surged by 18.5% for the third quarter of 2024 compared to the previous year, primarily due to higher benchmark rates.
Strategic Risks
Strategic risks are also prevalent, particularly following acquisitions and changes in business strategy.
- Acquisition Impact: The acquisition of Ally Lending, costing $2.0 billion, poses integration and operational risks.
- Market Share Volatility: The retailer share arrangements decreased by 6.6% to $914 million for the three months ended September 30, 2024, reflecting higher net charge-offs.
Mitigation Strategies
To address these risks, the company has implemented several mitigation strategies:
- Enhanced Risk Management: Strengthening internal controls and risk assessment protocols to better manage operational risks.
- Capital Planning: Submitting a capital plan to the Federal Reserve to comply with regulatory requirements and ensure adequate capital buffers.
- Customer Engagement: Initiatives to improve customer engagement and payment behaviors to mitigate delinquency rates.
Financial Data Overview
| Metric | 2024 (Q3) | 2023 (Q3) |
|---|---|---|
| Loan Receivables | $102.2 billion | $97.9 billion |
| Net Interest Income | $4.6 billion | $4.4 billion |
| Provision for Credit Losses | $1.6 billion | $1.5 billion |
| Net Charge-Off Rate | 6.06% | 4.56% |
| Over-30 Day Delinquency Rate | 4.78% | 4.40% |
Future Growth Prospects for Synchrony Financial (SYF)
Future Growth Prospects for Synchrony Financial
Analysis of Key Growth Drivers
In 2024, Synchrony Financial has identified several key growth drivers that are expected to enhance its market position:
- Product Innovations: The company has focused on enhancing its digital offerings, leading to a 4.1% increase in digital interest and fees on loans for Q3 2024.
- Market Expansions: Synchrony expanded its partnerships, entering into agreements with over 55 partners across various sectors, including health and wellness and lifestyle.
- Acquisitions: The acquisition of Ally Lending for $2.0 billion has strengthened Synchrony's portfolio, adding loan receivables of approximately $2.2 billion.
Future Revenue Growth Projections and Earnings Estimates
For the fiscal year 2024, Synchrony Financial projects a modest revenue growth trajectory:
- Expected loan receivables to increase, with a projected growth rate of around 4.4% year-over-year.
- Net interest income is anticipated to rise by approximately 5.7% to $4.6 billion for Q3 2024.
- Earnings per diluted share are forecasted to be around $6.65 for 2024, reflecting a significant increase from $4.14 in 2023.
Strategic Initiatives or Partnerships That May Drive Future Growth
Synchrony has embarked on various strategic initiatives to bolster growth:
- Partnerships with companies like Virgin Red and Cathay Pacific, aimed at enhancing customer engagement and expanding service offerings.
- Integration of the CareCredit card with Pets Best to streamline insurance claim reimbursements.
- Expansion into new sectors, including veterinary services and home improvement, to diversify revenue streams.
Competitive Advantages That Position the Company for Growth
Synchrony Financial's competitive advantages include:
- Robust Digital Infrastructure: The company's investments in technology have led to a digital interest and fees increase of 9.0% for the nine months ended September 30, 2024.
- Diverse Portfolio: With a loan receivables portfolio of $102.2 billion, Synchrony is well-positioned to leverage various market segments.
- Strong Capital Ratios: As of September 30, 2024, Synchrony reported a Tier 1 risk-based capital ratio of 14.3%, maintaining a well-capitalized status under Basel III regulations.
| Metric | Q3 2024 | Q3 2023 | Year-over-Year Change |
|---|---|---|---|
| Net Interest Income | $4.6 billion | $4.36 billion | 5.7% |
| Loan Receivables | $102.2 billion | $97.9 billion | 4.4% |
| Earnings Per Diluted Share | $6.65 | $4.14 | 60.5% |
| Tier 1 Risk-Based Capital Ratio | 14.3% | 12.9% | 1.4% |
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Article updated on 8 Nov 2024
Resources:
- Synchrony Financial (SYF) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Synchrony Financial (SYF)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Synchrony Financial (SYF)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.