Synchrony Financial: Risks Remain But The Latest Move Down Was Overdone

Nov. 05, 2018 7:13 AM ETSynchrony Financial (SYF)WMT15 Comments
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WG Investment Research


  • Synchrony Financial's stock has not performed well so far in 2018 and the uncertainty related to the Walmart deal is not helping.
  • However, the company continues to report impressive operating results and the most recent quarter was more of the same.
  • I am long Synchrony Financial and I recently added to my position.
  • This idea was discussed in more depth with members of my private investing community, Going Long With W.G.. Get started today »

Synchrony Financial (NYSE:SYF) recently reported strong Q3 2018 results that beat the top- and bottom-line estimates. The market, however, was not impressed as shown by the fact that the stock was down by almost 10% since the earnings were released (yes, the broader market pullback also came into play).

More recently, the stock took another leg down when it was announced that Walmart (WMT) was suing Synchrony over disputes related to the WMT credit-card portfolio.

ChartSYF data by YCharts

Notice the earnings-related and WMT-related drops over the last two weeks. While there are definitely risks that need to be considered, I believe that the recent pullback in SYF shares was overdone and that Synchrony Financial is still worthy of investment dollars, at least for the time being.

The Walmart News, A Case Of Addition By Subtraction?

In July 2018, Walmart decided to drop Synchrony and go with Capital One (COF) for the servicing of its credit cards. Synchrony's management team acknowledged the fact that losing Walmart's business would definitely negatively impact operating results in the near-term but they also stressed the importance of making a decision that is in the best interest of the company's long-term business prospects. There is a ton of moving pieces to consider but management previously provided two strategic options that are being evaluated:

Source: Q2 2018 Earnings Presentation

During the Q3 2018 conference call, management again mentioned that Synchrony should be able to replace the EPS that is associated with the WMT portfolio. It is looking more likely that a breakup is coming and that a portfolio sale will occur and, as described above, there will be a significant amount of capital that can be allocated to other things (i.e., investing in its business and/or buying back stock).

A Synchrony-Walmart breakup may turn out to

This article was written by

WG Investment Research profile picture
Our President and CIO is a CPA with experience in public accounting and the financial services industry. He earned his Master of Accountancy degree in 2008 and his B.S. in Business Management in 2007. He is also a Level III CFA candidate. He has been intrigued by the market from the start. Over the years, he has learned that long-term investing is a discipline that, if followed, will help contribute to building lasting wealth. As such, most of our articles will be about the investments that we plan to hold for at least 3 to 5 years, as long as the company's story does not change. As a Seeking Alpha contributor, our main goal is to write about the companies that are key to our portfolio with the hope of promoting discussion (for or against the investment) from others within the SA community.Please visit our website for more information about W.G. Investment Research LLC.

Disclosure: I am/we are long SYF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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