Synchrony Financial (NYSE:SYF) began trading at $23/share on Thursday, July 31 following its initial public offering. 125 million shares were offered in the IPO by the parent company, General Electric (NYSE:GE), corresponding to 15% of the company. The stock wavered between $22.60 and $24.00 throughout the course of the day but closed exactly as it began, at $23/share. Trading volume for the day was about 56 million or about 45% of the float.
As a useful comparison, Ally Financial (NYSE:ALLY), which is also in the financial services sector, debuted earlier this year on April 10 with a similar float size and was also priced at the low end of the expected price range. On the first day of trading, it was down 4.1% when the stock market was also down by 2%. Three and a half months later, it is still down 4%. However, there are stark differences between the two companies in valuation: when Ally Financial debuted it had an EPS of -$3.26 whereas Synchrony Financial's EPS is $2.4 and it is presently valued at only 9.6X trailing twelve months earnings.
It is possible that investor sentiment towards Synchrony Financial was more muted than anticipated because the stock market fell by about 2%. This may have been expected to some extent by the underwriters as the IPO was priced at the low end of its $23-26 range. Regardless of the less than stellar first day trading performance, Synchrony Financial remains an attractive investment opportunity with much future potential. It has a lower valuation (PE of 9.6) than its parent company (PE of 17) or its peers (PE of 17 for Citigroup (NYSE:C)). It is also operating within an economy that is continuing to recover and will consequently benefit from improving macroeconomic trends of lower unemployment and higher wages.
Disclosure: The author is long SYF. 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.