Buy The Dip In Synchrony, Says D.A. Davidson

D.A. Davidson advised investors to buy in the dip in Synchrony Financial SYF shares. The brokerage has a Buy rating with a price target of $37.00 on the shares. The investment firm said that the shares of the company overreacted to its fresh loss outlook of 20–30 bps.

Analyst Arren Cyganovich thinks the new loss guidance is likely to increase by 20–30 bps in the next twelve months. The earlier forecast called for net charge-offs to be around the past two years of 4.3 percent. According to the company, adding the fresh loss outlook likely pushed losses to approximately 4.5 percent.

Related Link: Is A Synchrony Financial Sympathy Sell-Off Unwarranted?

"To reflect the reserve build and modest increase in assumed losses for 2016 and 2017, we are lowering our EPS estimates to $2.63 and $3.05, from $2.83 and $3.12, respectively. We believe SYF's strong organic growth, excess capital position (~$4.6 billion by 2Q16 end), and unique RSAs with retailers that helps offset deterioration in credit," the analysts said in a research note to clients.

D.A. Davidson noted that management mentioned weakening results of late-stage delinquencies as the main factor for boosting charge-off expectations. The analyst believes that this is fairly consistent with what was heard from other card issues through the cycle since consumers are having tough time.

The brokerage pointed out management is not seeing any significant deterioration in credit, and while they are not loosening underwriting standards, they do not believe that there are any indications that they should tighten here.

On Thursday, shares of the company traded 2.47 percent lower at time of writing.