Synchrony Financial Soaring As Investors Anticipate 'Buy' Ratings

Aug.21.14 | About: Synchrony Financial (SYF)

Summary

SYF is up almost 9% in the last two days.

Expect analyst reports as early as next week.

GE, which still owns 80%+ of SYF benefits from SYF's price appreciation.

Synchrony Financial (NYSE:SYF), a General Electric (NYSE:GE) split-off had its IPO on July 31. After treading water near the IPO price of $23.00/share for several days, likely with the support of underwriters, the stock took off on Tuesday and Wednesday (August 19 and 20). In the last two days, SYF has appreciated $2.02, or 8.7%.

The most probable reason for the increase is the imminent release of analyst research on the Company. The SEC requires a 25 day quite period following an IPO (for non-lead underwriters; 40 days for lead underwriters). Expect research from multiple firms as early as Monday (August 25). As I wrote in my article, "Synchrony Financial: Why I Bought This GE Spin-Off", "Since a whopping thirty-one firms, including bulge bracket investment banks like Goldman Sachs (NYSE:GS) and JPM, were involved (and paid) with the offering, I expect significant, generally positive research within the month (morally, a firm cannot take a Company public without "believing")".

My personal analysis suggests target prices will fall in the $29-$31 range with an upside outlier approaching $35. The targets are based on trailing EPS of $2.37/share, growing by 8% to approximately $2.55/share with a 12x multiple.

GE has said it will hold its 80%+ position until late 2015, at which time it will be distributed to shareholders and/or sold. As long as GE holds SYF shares, it benefits from the price appreciation.

Unfortunately, the recent price increases have removed the "easy" opportunity to trade in advance of the analyst reports. I went long at $23 and will reevaluate my position following the release (and price action) of analysts' reports next week.

Disclosure: The author is long GE, 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.