Update: General Electric's Synchrony Financial IPO Is Good To Go

Jul.31.14 | About: Synchrony Financial (SYF)

Summary

General Electric has priced the Synchrony Financial IPO at $23 per share, at the low end of the range.

The company plans to sell up to 125 million shares in the IPO and raise just under $2.90 billion in net proceeds.

This IPO should be considered a major event in the history of General Electric and its move towards becoming a pure-play industrial stock.

According to various reports, General Electric (NYSE:GE) is getting ready to IPO its North America consumer lending division Synchrony Financial (NYSE:SYF). Synchrony is best known for offering private label consumer credit cards for many well-known brands such as Amazon, Walmart, and numerous other retailers.

Shares of Synchrony will start trading under the ticker "SYF" today, July 31. General Electric raised roughly $2.90 billion, offering 125 million shares priced at $23 each in the IPO, with Goldman Sachs (NYSE:GS) and J.P. Morgan (NYSE:JPM) acting as the lead underwriters. This was in the low-end of the $23 to $26 range I outlined in an earlier article. However, the overall valuation of Synchrony would be $19.1 billion, inline with analysts' estimates. Furthermore, the market for consumer-finance companies is currently weak at best, with the two recent examples, Ally Financial (NYSE:ALLY) and Santander Consumer USA Holdings (NYSE:SC), both trading below their IPO prices.

My readers will know that I am not a big fan of GE Capital. As a result, I am very happy to see General Electric start the process of divesting this division. Along with the Alstom acquisition, this should move General Electric more towards its industrial side and improve its valuation compared to peers. Synchrony currently generates around 30% of GE Capital's revenues. However, in my opinion, Synchrony carries the largest concentration of risk in the portfolio. This was exemplified by a recent CFPB lawsuit where Synchrony was ordered to pay $225 million to consumers in order to settle charges related to illegal credit card practices.

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Disclosure: The author is long GE. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.