Financial Sector Spotlight
The upcoming Q4 earnings season has captivated attention within the financial sector, featuring the likes of JPMorgan Chase & Co. (JPM), Bank of America Corporation (BAC), and others about to release their quarterly results. However, the consumer lending stocks, notably Ally Financial (ALLY) and Synchrony Financial (SYF), have emerged as bright spots in this sector.
Both Ally and Synchrony are approaching their 52-week highs and are scheduled to report their Q4 results on January 19 and 23, respectively. As the anticipation builds for their upcoming reports, it’s worth evaluating whether now is an opportune time to invest in Ally or Synchrony stocks to capitalize on potential higher highs.
Recent Performance Analysis
As diverse financial service providers, Ally caters primarily to the auto industry, while Synchrony offers a wide range of credit products through various national and regional retailers, local merchants, and manufacturers. Over the past year, both companies have demonstrated robust stock performance, with Ally’s shares surging +36% and Synchrony’s climbing +17%, outpacing the S&P 500’s growth of +24%. Notably, Synchrony hit a new 52-week high, surpassing $38 per share, while Ally is within reach of its previous high of $35.78 per share set last February.
Q4 Previews & Outlook
Ally and Synchrony face a challenging Q4 earnings landscape compared to their prior year performances. Earnings estimates for Ally are projected at $0.51 per share for Q4, down from $1.08 per share in Q4 2022. Similarly, Q4 sales for Ally are anticipated to decline by -9% to $2 billion. Looking ahead, Ally’s annual earnings for FY23 are forecasted at $3.12 per share, a decrease from $6.06 per share in 2022. However, a rebound is expected in FY24 with earnings projected to increase by 14% to $3.57 per share. Total sales are also predicted to dip by -3% in FY23 before recovering with a 2% rise in FY24 to $8.32 billion.
For Synchrony, Q4 earnings are anticipated to decrease by -22% to $0.98 per share, down from $1.26 per share in the comparative quarter. Nevertheless, fourth quarter sales are expected to rise by 8% year-over-year to $4.45 billion. Looking at the fiscal year, Synchrony is expected to conclude FY23 with EPS down by -16% to $5.13 per share, followed by a projected 7% increase to $5.51 per share in FY24. Total sales are also forecasted to rise by 8% in FY23 and a further 7% in the current year to $18.17 billion.
Strong Value
Despite the apparent decline in post-pandemic performance for Ally and Synchrony, both stocks have witnessed recent surges, largely fueled by their reasonable valuations. Ally’s stock currently boasts a modest 10.8X forward earnings multiple, while Synchrony’s shares trade at a mere 7.3X. Furthermore, Ally offers attractive value to investors with a generous 3.5% annual dividend yield, and Synchrony’s 2.67% yield stands well above the S&P 500’s average of 1.4%.
Takeaway
As the outlook for Ally Financial and Synchrony Financial’s stocks remains underpinned by a Zacks Rank #3 (Hold), the potential for achieving higher highs hinges largely on their Q4 results. Despite the challenges, maintaining positions in these leading consumer finance companies may continue to yield positive returns at their current levels.