Jefferies Cuts Synchrony Financial Estimates After NCO Guidance Change

Jefferies has cut its earnings estimates for 2016 and 2017 on Synchrony Financial SYF after the company raised its net charge-off (NCO) rate guidance. The brokerage, which has a Buy rating on the stock, also said the recent pullback in shares represents an attractive entry point.

Synchrony Financial now sees FY16 NCO at 4.5 percent to 4.8 percent over the next twelve months, up from prior outlook of 4.3 percent–4.5 percent. Additionally, the company "anticipates its ALLL will increase by a corresponding 20-30 bps versus the first quarter level of 5.50 percent."

Analyst John Hecht cut his 2016/17 EPS view to $2.53/$2.91 from $2.75/$3.05, respectively. The consensus estimate calls for EPS of $2.81 for 2016 and $3.09 for 2017.

Related Link: Barclays Bullish On Synchrony Finance, But Guidance Highlights Risks

"While the company increased its NCO guidance, we believe there are some potential offsets including better-than-forecast loan growth," Hecht wrote in a note.

The company grew its loan portfolio by 13 percent in the first quarter versus 2016 loan growth guidance of 7-9 percent.

The analyst attributed the company's NCO guidance change to recent disruption in the credit card consolidation arena and credit normalization.

Hecht also cut the price target to $35 from $42. Shares of Synchrony Financial were up 2.04 percent to $26.99 at time of writing.