Synchrony Financial seen as attractive play amid banking turmoil, shares upgraded

By Investing.com Staff 

Synchrony Financial (NYSE:) has not been immune from the recent banking crisis, but Oppenheimer analysts are sticking their neck out and upgrading the stock.

The analysts raised their rating on the stock to Outperform from Perform on Friday in a note entitled “No Guts, No Glory.”

While they admit that Synchrony does have higher than peer uninsured deposits that totaled 21.6% as of their last 10-K, it also has better than industry credit migration, loan growth less than peers, small/short duration securities book, among other items.

“SYF’s business is a steady mid- to high-single-digit revenue grower with strong partnerships and tight underwriting within its targeted FICO bands,” they commented. “The lack of securities portfolio MTM risk likely leaves SYF un-targeted MT/LT by outsized investor fears.”

Further, they see SYF as a “relative downside safety play” but also see near-term opportunity.

“We still expect higher credit risk and unemployment rates than Street estimates,” the analysts commented. “That said, today’s ~$29 stock price reflects much of the EPS downside recession risk, in our view. We think SYF could have 10% downside yet 20% upside.”

“SYF’s selected portfolio reported in trust prospectus; we created vintage analysis for delinquencies, payment rates, and NCOs,” they added. “Compared to total industry Transunion data, SYF is performing better. Without heavy loan growth vs. peers throughout 2021/2022, SYF is less likely to see growth math seasoning pressuring NCO rates NT, with the potential for additive effect if/when unemployment rises. Thus, credit metrics could look better than peers.”

The analysts also note the stock’s valuation has been hammered and while not immune to credit cycles, “its resilient business structure is attractive during this turmoil.”

Shares of SYF are down 2% mid-day despite today’s upgrade.