On Thursday, Synchrony Financial (NYSE:SYF) received a significant upgrade from Morgan Stanley (NYSE:MS), with its stock rating being raised from Equalweight to Overweight. Accompanying this upgrade, the firm also substantially increased the price target for Synchrony's shares, setting it at $82.00, up from the previous figure of $40.00. The upgrade comes as InvestingPro data shows Synchrony's impressive YTD return of 70%, with the stock currently trading at a P/E ratio of 8.35x.
The adjustment reflects a more than doubling of the price target, representing a 105% increase. This bullish stance by Morgan Stanley comes as the analyst anticipates positive developments for Synchrony Financial.
The upgrade is based on two key factors: the incorporation of earnings per share (EPS) upside from the company's preparatory actions for the anticipated late fee rule, and the assumption that the Consumer Financial Protection Bureau's (CFPB) late fee rule will not be implemented. InvestingPro reveals that 4 analysts have recently revised their earnings upward, while the company maintains a strong financial health score of 3.22, rated as "GREAT."
Morgan Stanley's revised analysis includes a projection of a 20% increase in 2026 estimated EPS for Synchrony Financial to $9.04. This increase takes into account the net interest margin (NIM) and fee income benefits that are expected to arise from the company's proactive measures regarding the late fee rule.
The updated price target is derived from a target price-to-earnings (PE) multiple of 9 times the estimated 2026 EPS. This multiple remains at a 1x discount to Synchrony Financial's historical PE ratio and also represents a significant discount when compared to the PE ratios of other credit card peers in the industry. The analyst's comments suggest that even with this upgrade, Synchrony's valuation is conservative relative to its historical standards and industry counterparts.
In other recent news, Synchrony Financial has reported robust third-quarter earnings, declaring net earnings of $789 million, surpassing consensus estimates. This strong performance has led the company to revise its full-year 2024 earnings per share (EPS) guidance upwards to a range of $8.45-$8.55. Alongside these results, Synchrony Financial has declared a quarterly cash dividend for its common and preferred stockholders, signaling a stable financial position.
In the latest developments, Synchrony Financial has disclosed its monthly credit performance data and charge-off and delinquency statistics. These figures provide valuable insights into the health of the company's credit portfolio. However, Synchrony Financial anticipates a low single-digit decline in purchase volume for Q4, reflecting ongoing challenges in consumer spending and credit performance.
Goldman Sachs (NYSE:GS) maintained a Buy rating on Synchrony Financial, citing the company's recent performance. In addition, JPMorgan (NYSE:JPM) upgraded Synchrony Financial's stock from Neutral to Overweight, highlighting the company's proactive steps to counter potential revenue losses due to the Consumer Financial Protection Bureau's (CFPB) late fee rule.
Other analyst firms such as Baird, RBC Capital, and Wells Fargo (NYSE:WFC) have also upgraded their price targets for Synchrony Financial following these recent developments.
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