Synchrony Financial Stock is Ready to Slingshot Back Up

Consumer financial services company Synchrony Financial NYSE: SYF stock has been on a tear after a strong Q1 fiscal 2022 earnings beat. The Company provides lending solutions to consumers ranging from credit cards and financing options across many segments including veterinary care, power sports, equipment, auto repair, home improvement, and medical care. The Company added 5.5 million accounts in its latest quarter to grow to a total of 70.1 active accounts, up 6% since the year ago period. The Company added or renewed over 15 programs with well-known brands including Mattress Warehouse, Guitar Center, NAPA Auto Care and Generac Power Solutions. It’s private label cards to receive higher interest rates than while mitigating some of the default risk by dual-branding credit cards. Default rates have been in-line with banks but leads the industry in net margin interest of 15.80% compared to less than 2.5% for U.S. banks. The U.S. Federal Reserve has telegraphed an aggressive rate hike strategy to fight inflation that will further bolster profits for Synchrony. Shares trade at just 7X forward earnings. The Company approved a $2.08 billion stock buyback program effective for fiscal Q3 2022 and a 5% dividend increase. Prudent investors seeking a sturdy financial trade can look for opportunistic pullback levels in shares of Synchrony Financial.

Q1 Fiscal 2022 Earnings Release

On April 18, 2022, Synchrony Financial released its fiscal first-quarter 2022 results for the quarter ending March 2022. The Company reported earnings per share (EPS) profits of $1.77 versus $1.54 consensus analyst estimates, a $0.23 beat. Revenues grew 8.21% to $2.79 billion beating estimates by $149.8 million. Interest and fees on loans rose 7% year-over-year (YoY) to $4 billion driven by growth in average loan receivables on total loans of $83 billion. Purchase volume increased 17% to $40.5 billion. Average active account rose 5% to 70.1 million. Net interest margin grew 182 bps to $15.80% and efficiency ratio rose 110 bps to 37.2%. The Company broadened the CareCredit network with multi-year deal with Mercyhealth to provide patient financing options.

Conference Call Takeaways

Synchrony Financial CEO Brian Doubles set the tone by pointing out the Q1 2022 achievements which include making net earnings of $932 million, a 4% return on average assets, and a return on tangible common equity of 34.9%. In addition to the 10% growth in new account and 6% growth in average active accounts, he emphasized that purchase volume had increased 17% YoY. Higher engagement was experienced as purchase volume rose 10% per account YoY. He broke down the demographics of its customer spend with both Millennial and Gen-Z-ers increasing their spend by 23% YoY while older Gen-X and baby boomers increased their spending by 15% YoY. It’s co-branded credit cards accounted for 42% of the purchase volume in fiscal Q1 2022, up 29% YoY. CEO Double pointed out its partnership with PayPal as an example of enhancing its offerings, “Earlier this month, we announced the launch of our new and refreshed co-branded PayPal Cashback credit card. The consumer value proposition is a best-in-class cash-back offering where the consumer will earn unlimited 3% cash back when paying with PayPal at checkout and 2% everywhere else, Mastercard is accepted. The card has no annual fee, no category restrictions and can be added to the digital wallet for easy, fast and secure checkout.” It will be integrated into the PayPal app.

SYF Opportunistic Pullback Levels

Using the rifle charts on the weekly and daily time frames provide a precise view of the price action playing field for SYF stock. The weekly rifle chart downtrend formed a bottom near the $33.85 Fibonacci (fib) level and staged a rally to peak at the $41.88 level. The weekly downtrend is stalled as the 5-period moving average (MA) is rising at $37.19. The 15-period MA is falling at $37.19. The weekly 200-period MA support sits at $34.61 and 50-period MA resistance sits at $45.88. The weekly market structure low (MSL) buy triggered a breakout above $38.39. The weekly stochastic attempts a 20-band bounce as it overshoots the 15-period MA on channel tightening. The daily rifle chart has been uptrending but may be putting in a shooting star peak as the stochastic reverses off the 90-band. The daily 5-period MA is testing at $39.74 followed by the 50-period MA support at $38.62 and 15-period MA rising at $37.23. The daily stochastic peaked and crossed down off the 90-band setting up a reversion. Prudent investors can watch for opportunistic pullbacks at the $37.84 fib, $36.34 fib, $34.84 fib, $33.85 fib, $32.71 fib, $31.64 fib, $29.99 fib, and the $27.50 fib. Upside trajectories range from the $50.56 fib up towards the $64.55 fib level.