Financial Sector Ideas

[gfp927z]

Synchrony Financial - >>> More Growth Is in the Cards for Synchrony



By James Passeri

Jan 08, 2016



http://realmoney.thestreet.com/articles/01/08/2016/more-growth-cards-synchrony?puc=yahoo&cm_ven=YAHOO



When General Electric (GE) needed help offloading its appliances to cash-strapped customers during the Great Depression, it created Synchrony Financial (SYF).

The credit arm, which started as a lender for ovens and refrigerators, has since sprawled into the biggest private-label credit card in the country.

But as GE's CEO, Jeff Immelt, spent 2015 throwing out just about every GE finance business save the kitchen sink, more than $20 billion in Synchrony shares were added to the public market. And analysts say it's time to start buying them.

Last year alone, Immelt sold off more than $100 billion of assets that were tied to GE Capital, its longtime lending arm that, among other things, contributed to GE's ensnarement in the 2008 financial crisis as well as its slow recovery. His vision is to get GE back to its core industrial businesses, from manufacturing jet engines to railcars.

Immelt's ambitious effort, which launched in April, includes hiking GE's industrial share of total earnings to 90% by 2018 (from a mere 58% in 2014). And his shareholders appear ready to say goodbye to GE Capital and its stake in Synchrony (GE shares climbed 23% last year throughout the unwinding).

After first spinning Synchrony off in its own initial public offering in the summer of 2014, GE offloaded its remaining 85% equity stake for $20.4 billion last November, marking the biggest share exchange in history. (Immelt was simultaneously wrapping up the largest acquisition in GE's history -- $10 billion for French turbine-maker Alstom's energy businesses in Europe.)

At this point, it should be clear to investors that it's going to be difficult to recognize GE this year from, say, 2008, but the more difficult (and important) question is what investors should be thinking about Synchrony Financial.

In short, Wall Street appears to love Synchrony.

With an average price target of $38.89 (35% above where Synchrony closed Friday), 22 of Synchrony's 24 listed analysts recommend buying the stock, while the other two say hold, according to consensus data compiled by Bloomberg.

And as the company finds its balance without the backing of GE, the word is that Synchrony is going to be an agile competitor with plenty of room to outperform rivals like Discover (DFS) and American Express (AXP) through new partnerships.

American Express was plagued in 2015 by the loss of longtime partner Costco (COST), the sudden death of its president, Ed Gilligan, and unfavorable litigation that will allow AmEx's retailers the freedom to "steer" customers to rival cards.

Synchrony, on the other hand, has recently partnered with refiner Citgo, a deal that will become effective this quarter, which is just one of many healthy growth signs, Jefferies analyst John Hecht wrote in a recent note. Jefferies maintains a Buy position on Synchrony with a $42 price target.

"We believe Synchrony is one of the best-positioned players in the industry as it continues to benefit from strong loan growth as well as continued credit tailwinds," Hecht wrote. "We favor Synchrony into the quarter and expect American Express to continue to face headwinds."

Keefe, Bruyette & Woods is also among the most bullish, setting a $40 price target on Synchrony, and Nomura analysts have labeled Synchrony "our top pick in the cards."

<<<