Bank Of America Says Synchrony Financial's Quarter Was Solid, But Current Price Leaves Little Upside

Synchrony Financial reported second-quarter GAAP EPS of $0.58, mostly in line with Bank of America's $0.57 estimate and nicely above the $0.55 consensus. The company's second quarter saw strong loan growth, lower RSAs and better-than-expected OpEx offset by the higher provision.

Synchrony Financial also witnessed high-single-digit year-over-year purchase volume and average active accounts growth. Management is confident that it can continue to deliver very healthy growth given new partnerships and better engagement.

Related Link: Why Synchrony Financial Remains Barclays' Most Attractive Credit Card Stock

"Credit metrics appear to be trending in line with SYF's updated guidance, though the $274 million reserve build is somewhat curious as the coverage ratio moved to ~14 months," analyst Kenneth Bruce wrote in a note.

Meanwhile, credit performance is trending in line with the company's 2016 loss guidance of about 4.5 percent. The company also reaffirmed '17 guidance at 20–30bp higher.

Further, NCOs and delinquencies were modestly lower sequentially, suggesting credit trends remain healthy, despite the higher-expected-losses for 2017.

"We think SYF's growth profile and relative EPS stability justify the premium. That said, we think SYF's premium limits the potential upside and we reiterate our Neutral rating," Bruce noted.

Bruce also increased 2016E and 2017E EPS estimates to $2.58 and $2.95 from $2.53 and $2.92, respectively.

At time of writing, shares of Synchrony Financial had dropped 1.27 percent on the day to $28.02.

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