TipRanks Smart Value #22: Unlocking Value
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Dear Investors,
Dear Investors,
Welcome to the 22nd edition of our recently launched TipRanks Smart Value Newsletter!
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This Week’s Top Value Pick: Synchrony Financial (SYF)
Synchrony Financial (SYF) is a leading consumer financial services company offering private-label credit cards, installment loans, and savings products. It partners with businesses across retail, healthcare, travel, and digital platforms, delivering flexible financing powered by advanced data analytics. Synchrony’s tech-driven model enables risk-based pricing, efficient underwriting, and seamless omnichannel delivery. Backed by a strong balance sheet and a disciplined capital allocation strategy, the company maintains consistent profitability while helping merchants boost sales and consumers manage everyday spending.
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Legacy Reinvented
Synchrony Financial traces its roots to GE Capital Retail Bank, a division of General Electric. In 2014, Synchrony spun off as an independent public company, inheriting GE’s legacy of private-label credit partnerships with major retailers. However, the full separation from GE was completed in November 2015 through an exchange offer. From the outset, Synchrony focused on building a data-rich, partner-driven consumer finance business, serving key sectors such as retail, healthcare, digital commerce, and lifestyle.
Throughout the 2010s, Synchrony Synchrony broadened its offerings with digitally delivered consumer credit products and deposit accounts through Synchrony Bank, enabling more stable funding. A pivotal milestone in Synchrony’s evolution was the introduction of its patented Dual Card platform, which integrates private-label and general-purpose functionality to enhance customer engagement across both in-store and online channels. The company accelerated digital transformation through AI-driven underwriting, risk analytics, and omnichannel user experiences. Strategic partnerships with Amazon, PayPal, and Verizon deepened its reach across e-commerce and mobile ecosystems.
During the first six months of 2025, Synchrony executed more than 25 partner renewals and additions, including extending its key relationship with Amazon through 2035 and securing new programs with Walmart and Sun Country Airlines. These moves locked in long-term revenue streams and expanded distribution.
Despite macroeconomic headwinds, Synchrony has delivered consistent earnings, maintained strong capital returns, and improved credit quality. Its model – anchored in long-duration partner contracts, disciplined underwriting, and digital-first innovation – continues to support sustainable earnings growth and durable shareholder value.
Today, Synchrony Financial has a market capitalization of around $26 billion, with trailing twelve months’ (TTM) revenues of around $9 billion, and is ranked #178 on the 2025 Fortune 500 list.
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Strategic Expansion
Synchrony Financial has strategically executed a series of targeted acquisitions to expand its capabilities across consumer financing, digital commerce, and specialty verticals. These deals have enabled the company to deepen its market presence, foster product innovation, and support long-term earnings growth.
In 2017, Synchrony acquired GPShopper, a mobile commerce platform that enhanced the company’s digital engagement tools and retail technology offerings. The following year, it strengthened its digital capabilities further with the acquisition of Loop Commerce, a platform that enabled online gift-giving without requiring recipient information at checkout. This innovation improved customer experience and conversion rates for retailers.
Also in 2018, Synchrony made one of its most transformative moves by acquiring PayPal’s U.S. consumer credit receivables portfolio for $6.8 billion. This deal significantly expanded Synchrony’s footprint in credit cards and installment lending while deepening its relationship with one of the world’s largest digital payments platforms.
In 2019, the company entered the pet insurance market with the acquisition of Pets Best, marking its expansion into pet wellness financing. Under Synchrony’s ownership, Pets Best grew from insuring about 125,000 pets in 2019 to nearly 800,000 by 2023. However, in early 2024, Synchrony agreed to sell Pets Best to Independence Pet Holdings, while retaining a minority stake and a strategic partnership, signaling a shift towards a capital-light exposure in this space.
The company expanded its healthcare financing capabilities with the 2021 acquisition of Allegro Credit, which added depth to its point-of-sale financing solutions for elective health procedures. This complemented CareCredit, Synchrony’s long-standing platform for healthcare-related payments.
The most recent and potentially most strategic acquisition came in March 2024, when Synchrony acquired Ally Lending from Ally Financial in a $2.2 billion deal. This transaction brought in approximately 2,500 merchant relationships and significantly expanded Synchrony’s presence in the high-growth home improvement and health and wellness sectors. Company executives described the deal as a key step in advancing Synchrony’s multi-product strategy and accelerating growth across specialty verticals.
Together, these acquisitions reflect Synchrony’s focused strategy of entering adjacent markets, enhancing its digital infrastructure, and building long-term value through targeted expansion across consumer finance.
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Lending Power
Synchrony Financial operates a high-volume, partner-centric business model built around consumer credit products, merchant financing, and digital banking solutions. Its core offerings include private-label and co-branded credit cards, patented Dual Cards, installment loans, and FDIC-insured deposit products, primarily offered through its wholly owned online bank. The company generates most of its revenue from interest and fees on loan receivables, supported by long-standing relationships with around 68 million active customer accounts. Additional revenue streams include interchange fees,1 promotional financing discounts, and customer-related fees.
A leading strength of Synchrony’s model lies in its deeply integrated partnerships with leading retailers and digital platforms such as Amazon, PayPal, Lowe’s, and Sam’s Club. These arrangements often include exclusivity provisions and automatic renewals, aligning incentives through revenue-sharing arrangements while enhancing program retention. Following recent renewals and new deals, 22 of Synchrony’s 25 largest partner agreements are now set to expire in 2027 or later. These relationships contributed 98% of interest and fees on loans and 97% of loan receivables in FY24, securing long-term revenue visibility.
Synchrony offers a wide range of credit products, including private-label and co-branded cards, Dual Cards, commercial pay-in-full accounts, and installment loans. Private-label cards are co-branded with partners or Synchrony programs like CareCredit and are used mainly within specific merchant networks. General-purpose co-branded and Synchrony-branded cards are also offered, extending the company’s reach across all platforms. For commercial clients, Synchrony provides similar card options and business-oriented financing.
The company originates both secured and unsecured installment loans. Secured loans are primarily tied to outdoor power equipment purchases such as motorcycles and all-terrain vehicles, while unsecured loans support home, auto, and health-related spending. Products like Synchrony Pay Later, Pay Monthly, and Pay in 4 offer short-term, fixed-rate installment plans repaid through equal payments.
Synchrony’s funding model is a competitive advantage. As of the second quarter of 2025, 84% of its funding came from over $82 billion in direct and brokered deposits. This stable, low-cost funding structure enhances net interest margins2 and reduces exposure to capital market volatility.
Its operations are organized into five sales platforms: Home & Auto, Digital, Health & Wellness, Lifestyle, and Diversified & Value. These are powered by proprietary technologies like the Synchrony PRISM underwriting engine and Quickscreen for targeted marketing. Investments in mobile platforms, digital servicing, and AI-enhanced decision-making continue to improve efficiency, customer retention, and monetization.
The Home & Auto platform delivers integrated financing solutions across in-store and digital channels through partners offering home improvement and automotive services. Products under this umbrella include Synchrony Car Care and Synchrony HOME cards. The Digital platform supports digital-first retailers and marketplaces such as PayPal (including Venmo), Amazon, eBay, Verizon, and Qurate, providing embedded financing solutions.
Diversified & Value provides comprehensive payments and financing solutions through major retailers like Sam’s Club, TJX Companies, JCPenney, and Belk, which serve everyday consumer needs and special occasions. Health & Wellness is led by the CareCredit brand and partners like Walgreens, offering financing for personal and pet healthcare needs. The Lifestyle platform provides comprehensive payments and financing solutions and spans retailers in apparel, jewelry, sports, and outdoor equipment, covering a diverse set of consumer interests.
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1- Interchange fees are earned from Dual Card and co-branded card use outside partner channels.
2- Net interest margin is the difference between the interest Synchrony earns from lending (credit cards, loans) and the interest it pays to fund these assets, as a percentage of its total interest-earning assets.
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Fintech Fusion
Strategically, the company made significant progress in expanding and diversifying its partner portfolio. Dual and co-branded cards accounted for 45% of Q2 2025 purchase volume, up 5% year-over-year, driven by growth in platforms like the CareCredit Dual Card. Synchrony added or renewed more than 15 partnerships in the quarter, including a new collaboration with Walmart and OnePay, a fintech partially backed by Walmart. The program, launching in fall 2025, will feature both a general-purpose Mastercard and a Walmart-only card, embedded directly within the OnePay app.
The OnePay initiative is a key part of the company’s digital-first push. The fully app-based experience will enable customers to manage their Walmart cards alongside other OnePay financial tools. Synchrony expects this program to deliver credit losses roughly 10% lower than those of its legacy Walmart portfolio, supported by real-time digital monitoring and improved customer targeting.
The company has also introduced a new PayPal-branded physical credit card for in-person purchases and promotional financing, reinforcing its expansion into fintech ecosystems.
Credit performance was another highlight in the second quarter as the 30+ day delinquency rate3 dropped to 4.18% and the 90+ day rate fell to 2.06%, improving 13 basis points year-over-year. The net charge-off rate4 improved to 5.7%, down 72 basis points from the prior year and better than historical norms. The allowance for credit losses as a percentage of receivables also decreased by 28 basis points to 10.59%. Synchrony noted that loans originated in late 2024 and 2025 are outperforming the benchmark 2018 cohort, while weaker 2022–2023 legacy loans have already been addressed through stricter underwriting.
The company is optimistic about its near- and medium-term growth outlook. While credit tightening and consumer stress previously weighed on loan growth, Synchrony expects loan balances to stabilize by the end of 2025. Discretionary spending categories like wellness, cosmetics, and electronics are showing early strength. The company also sees an opportunity to responsibly expand credit access in healthcare and other growth segments by gradually easing lending standards. Given the typical lag between approvals and loan receivables, any material impact is expected to emerge in 2026. As a result, the company remains confident in its ability to return to mid-to-high single-digit loan growth in 2026, supported by new product rollouts and a broader digital footprint.
Synchrony is focused on restoring its net interest margins to pre-pandemic levels of around 16%. Several factors support this target, including reduced use of promotional financing in favor of standard revolving credit, which is more profitable, stabilized credit trends encouraging more customers to revolve balances (the balance unlikely to be paid in full monthly), and targeted adjustments to pricing and credit terms. By Q2 2025, the company had implemented 50% of its Product, Pricing, and Policy Changes5, with 75% expected by 2026.
At the same time, Synchrony is investing in next-generation technology to drive operational efficiency and long-term growth. GenAI tools such as Synchrony GPT are being used internally to streamline workflows, enhance customer service, and improve partner-facing features like marketplace search.
One emerging pillar of growth is the Synchrony Pay Later program, which allows consumers to spread payments over equal, predictable installments. This complements the company’s traditional revolving products and has seen adoption from key partners including Amazon, Lowe’s, and JCPenney. The offering aligns well with evolving consumer preferences for flexibility and transparency. The company’s Amazon Pay Later program is part of its broader Synchrony Pay Later offering for purchases of $50 or more.
As for expenses, Q2 expenses included several one-time costs, such as early bonuses for hourly employees and variable compensation tied to share performance. Additionally, Walmart OnePay launch expenses will be evenly split between Q3 and Q4. Management expects Q4 to present a more favorable expense profile.
Tariffs and shifting consumer behavior pose potential macro risks, but the company is closely monitoring the tariff situation with its partners, as higher retail costs could dampen consumer spending and impact loan growth.
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3- Delinquency rates represent the percentage of borrowers who have missed credit card payments beyond a certain timeframe, commonly tracked at 30, 60, and 90 days past due.
4-The net charge-off rate for companies like Synchrony Financial is a key financial metric that measures the percentage of loans or credit balances that are deemed uncollectible and subsequently written off, after accounting for any recoveries from previously written-off loans.
5- PPPC’s are updates to Synchrony’s product features, pricing structures (interest rates, fees), and credit/underwriting policies – essentially all the levers affecting how and to whom credit is extended, and on what terms.
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Financial Resilience
Synchrony has delivered consistent financial performance over the past three years, with earnings rising at a CAGR of 6.1% and revenue growing at a modest rate of 0.5%. This performance has been driven by the company’s scaled and renewed partnerships, diversified product offerings, disciplined underwriting enabled by technology, and strong risk management practices.
In the second quarter of 2025, Synchrony reported strong results despite macroeconomic uncertainty. Diluted earnings per share rose to $2.50 from $1.55 a year earlier, surpassing analysts’ expectations. Net interest income grew 2.6% year-over-year to $4.52 billion, supported by solid credit card activity and stable funding costs. Although loan receivables moderated to $99.8 billion, net interest margin improved 32 basis points to 14.78%, driven by Synchrony’s low-cost, deposit-based funding model. Returns on average assets6 (3.2%) and tangible common equity7 (28.3%) both exceeded historical benchmarks, reflecting the company’s ongoing profitability.
Purchase volume declined 2% year-over-year to $46 billion, reflecting earlier credit tightening and cautious consumer spending. Net revenue declined 2% to $3.6 billion, slightly below estimates, mainly due to increased revenue-sharing with partners. Despite this, Synchrony maintained operational strength through its efficient funding base and liquidity, rising 9% to $21.8 billion. Capital levels improved further, with a CET1 ratio8 of 13.6% and a total capital ratio9 of 16.9%, providing flexibility for future growth, capital returns, or strategic acquisitions.
Synchrony expects loan receivables to remain flat in 2025, with growth resuming in 2026 as new programs scale and lending standards ease. The company projects its net interest margin to average 15.6% in the second half of the year, supported by lower funding costs and higher asset yields. Expenses are expected to rise moderately due to continued investments in technology and new product launches.
The company lowered its FY25 revenue guidance to $15.2 billion at the midpoint, down from $15.5 billion, due to softer loan growth, modestly lower purchase volume, and evolving consumer behavior. The company anticipates its loss rate10 to remain between 5.6% and 5.8%, within its long-term target of 5.5% to 6%, supported by steady credit quality and improved repayment patterns. Loan loss reserves11 are expected to range from 3.95% to 4.1% of average receivables, reflecting continued strength in partner programs and healthier repayments.
Key financial metrics highlight Synchrony’s operational efficiency and balance sheet health. The efficiency ratio12 rose 240 basis points to 34.1%, reflecting disciplined cost control. The company’s debt-to-equity ratio stood at 0.94x, below the sector median, offering significant financial flexibility. Synchrony also maintains investment-grade ratings of “BBB” from both S&P and Fitch, reflecting a stable outlook and supported by its strong capital position and consistent earnings.
As of mid-2025, Synchrony’s book value per share13 rose 17% to $42.30, while tangible book value per share14 increased 18% to $36.55, underscoring continued balance sheet strength and value creation for shareholders.
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6- Return on average assets (ROAA) measures how efficiently a company generates profit from its average total assets during a specific period.
7- Return on tangible common equity (ROTCE) measures profitability relative to tangible common equity, excluding intangible assets like goodwill. It shows how well a company generates returns for common equity holders with tangible capital.
8- CET1 ratio measures a bank’s core equity capital relative to its risk-weighted assets (RWAs). It represents the highest quality capital that a bank holds to absorb losses and continue operating during financial stress.
9- Total capital ratio measures a bank’s total regulatory capital (including CET1 capital, Additional Tier 1 capital such as preferred shares, and Tier 2 capital like subordinated debt) against its risk-weighted assets.
10- The loss rate refers to the percentage of total loans or receivables that Synchrony expects to write off as uncollectible due to borrower defaults or charge-offs.
11- Loan loss reserves is the amount of money set aside to cover estimated loan losses based on current and predicted credit conditions.
12- The efficiency ratio for Synchrony Financial is a key measure of how well the company manages its operating expenses relative to its revenue. It reflects how efficiently the company controls overhead costs while generating income.
13- Book Value per share (BVPS) measures the net asset value of the company on a per-share basis. It is calculated as total shareholders’ equity (assets minus liabilities) divided by the number of outstanding shares.
14- Tangible book value per share removes intangible assets (such as goodwill and brand value) from total equity, showing the per-share value of tangible, physical assets and capital.
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Value Proposition
Synchrony Financial has maintained a strong commitment to returning capital to shareholders, backed by robust earnings and solid free cash flow. The company has paid dividends consistently for the past nine years and has raised them over the past three, reflecting renewed financial strength following the COVID-19 pandemic and related credit challenges. During earlier years, Synchrony prioritized balance sheet health, credit loss management, and capital preservation over dividend growth. Currently, the company returns 13.4% of reported earnings to shareholders.
In Q2 2025 alone, Synchrony returned $614 million to shareholders – $114 million through dividends and $500 million via share repurchases. The quarterly dividend now stands at $0.30 per share, up 20% year-over-year, signaling confidence in the company’s cash flow resilience and long-term profitability. Over the first half of 2025, the company repurchased $1.1 billion of common stock and paid $211 million in dividends. As of June 2025, $2 billion remains under its share repurchase authorization through mid-2026, providing ample flexibility to continue enhancing shareholder returns.
Synchrony’s stock has surged over 57% in the past year, fueled by improving financial results, stabilizing credit trends, and investor interest in profitable, capital-returning financials in a high-rate environment. Despite the rally, the stock remains attractively valued, trading at over a 25% discount to the financial sector median on both non-GAAP trailing and forward P/E ratios. SYF is also trading at a discount of approximately 1% and 6% to its historical averages based on its non-GAAP trailing and forward P/E ratios, respectively.
On a trailing price-to-cash flow basis, SYF trades at more than a 70% discount to its sector median. Operating at the intersection of traditional credit and fintech, Synchrony is positioned as a diversified credit platform – spanning private-label financing, co-branded cards, and point-of-sale lending – rather than a conventional card issuer. Synchrony sits at the lower end of the valuation range when compared to competitors like American Express and Ally Financial across GAAP trailing and forward P/E ratios, price-to-book, and cash flow metrics.
Wall Street sentiment remains largely bullish, with analysts citing the company’s diverse partner base, strong risk-adjusted margins, and disciplined capital management as key long-term strengths. Consensus estimates suggest an upside potential of around 14%, with some analyst forecasts as high as 44%. A discounted cash flow analysis supports this view, indicating SYF may be undervalued by roughly 49%, offering meaningful upside for long-term investors.
Investing Takeaway
Synchrony Financial presents a compelling opportunity for value-focused investors. The company’s consistent earnings, conservative underwriting, and efficient funding model have helped it navigate economic cycles while maintaining profitability. Its partner-centric approach, combined with disciplined risk management and capital returns, enhances long-term shareholder value. Despite a strong rally in its stock price, Synchrony continues to trade at a discount to sector and historical valuation benchmarks, suggesting room for further upside. With renewed financial strength, a growing digital presence, and a diverse product suite, Synchrony appears well-positioned to deliver sustainable returns, making it an attractive candidate for value investors seeking resilient growth.
