Synchrony Financial (NYSE:SYF) is the largest issuer of store-branded credit cards in the U.S. ahead of competitors like Citigroup (NYSE:C) and Capital One Financial (NYSE:COF). It currently operates under the large umbrella of General Electric (NYSE:GE) Capital. As part of a multi-pronged attempt by General Electric to reduce its reliance on its financial unit and to focus instead on its industrial unit, an initial public offering of Synchrony Financial will take place on Thursday, July 31.
The IPO for Synchrony Financial is priced at $23, which is at the low end of the $23-26 expected price range. It will trade on the New York Stock Exchange under the ticker symbol SYF. The initial public offering will only include 125 million shares, or about 15% of the company, with the underwriters having an option of an additional 18.75 million shares. General Electric owns the remaining 84.9% of Synchrony Financial, which will be split-off to shareholders in 2015.
At $23/share price, the Synchrony Financial IPO is the largest one so far this year and will raise $2.8 billion. The entire company will have a starting market cap of $19 billion. In 2013, Synchrony Financial reported earnings of $2 billion, which was down 5% from $2.1 billion in 2012. Based on trailing twelve months earnings, Synchrony Financial will be valued at only 9.6X earnings, confirming my previous view that it is a highly attractive investment ahead of the split-off of the 85% remainder of the company in 2015. This is much lower than General Electric's current valuation of 17.5X earnings. Competitors like Citigroup and Capital One Financial also have much higher valuations of 17X and 11.2X earnings, respectively. General Electric is likely purposely underpricing Synchrony Financial in order to generate interest for the upcoming split-off in 2015. Under terms of the deal, current General Electric shareholders will be able to voluntarily exchange their shares for those of Synchrony Financial.
Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in SYF over the next 72 hours. 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.