If you are wondering whether Synchrony Financial at around US$72 a share still offers value, you are not alone. This article is built to help you make sense of the current price.
The stock has had a mixed run recently, with a 2.2% decline over the last 7 days and a 9.8% decline over the last 30 days, even though the 1 year return sits at 12.8% and the 3 year and 5 year returns are 121.1% and 110.3% respectively.
Recent news around Synchrony Financial has focused on the company as part of broader discussions about consumer credit trends and the health of card issuers. These themes can influence how investors think about risk and reward for lenders like this. Commentary has also touched on how higher borrowing costs and consumer balance sheets might affect companies in the sector, which provides context for the share price moves you are seeing.
Against that backdrop, Synchrony Financial currently scores a 6 out of 6 valuation score, indicating it screens as undervalued on all six checks we use. Next, we will walk through the key valuation approaches behind that score, then finish with an even more holistic way to think about what the stock might be worth.
The Excess Returns model looks at how much profit a company is expected to generate above the return that shareholders require, then adds that to the value of its equity base. In other words, it asks whether Synchrony Financial is likely to earn more on its capital than the cost of that capital, and for how long.
For Synchrony Financial, the model starts with an estimated Book Value of US$44.74 per share and a Stable EPS of US$10.53 per share, based on weighted future Return on Equity estimates from 12 analysts. The Average Return on Equity used in the model is 19.61%, while the Cost of Equity is US$4.85 per share. That implies an Excess Return of US$5.68 per share, which is treated as value created above the required return. The Stable Book Value is set at US$53.72 per share, based on forecasts from 8 analysts.
Putting these inputs together, the Excess Returns valuation points to an intrinsic value of about US$154.81 per share, which implies the stock is 53.3% undervalued relative to the current market price.
For a profitable lender like Synchrony Financial, the P/E ratio is a useful shorthand for what the market is paying for each dollar of earnings. It ties directly to your potential earnings yield and is widely used to compare companies that are already generating consistent profits.
What counts as a “normal” or “fair” P/E depends on how the market views a company’s growth potential and risk profile. Higher expected growth or lower perceived risk can justify a higher multiple, while slower growth or higher risk usually points to a lower one.
Synchrony Financial currently trades on a P/E of 7.25x. That sits below the Consumer Finance industry average of about 8.17x and well below the peer group average of 24.85x. Simply Wall St’s proprietary Fair Ratio for Synchrony Financial is 15.75x, which estimates what the P/E might be given factors such as its earnings growth profile, industry, profit margins, market cap and specific risks.
This Fair Ratio is more tailored than a simple peer or industry comparison because it adjusts for those company specific factors rather than assuming all lenders deserve the same multiple. Comparing 7.25x to a Fair Ratio of 15.75x suggests the shares screen as undervalued on this metric.
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. These are simply your story about a company, linked directly to a financial forecast and then to a fair value. On Simply Wall St’s Community page, millions of investors use them to plug in their own assumptions for future revenue, earnings and margins. They compare the Fair Value that results from those numbers to the current market price to help decide when they might buy or sell, and then see that view update automatically when fresh news or earnings arrive. For Synchrony Financial, you might see one Narrative that anchors on a Fair Value of about US$42 per share and another closer to US$145 per share. Those two investors are really just telling different stories about how its credit costs, growth and valuation multiples could play out over time.
For Synchrony Financial, however, we will make it really easy for you with previews of two leading Synchrony Financial Narratives:
🐂 Synchrony Financial Bull Case
Fair value used in this bullish Narrative: about US$105.00 per share
Implied undervaluation versus the recent US$72.31 close: around 31.1%
Revenue growth assumption used in this Narrative: 5.83%
The bullish author uses an excess returns style framework that links Synchrony Financial’s book value, return on equity, discount rate and growth rate to reach a fair value above US$100 per share.
The Narrative leans on moderate revenue growth, solid profit margins and a discount rate below 9%, which together produce a fair value meaningfully higher than the recent share price.
The key idea is that if Synchrony Financial maintains healthy returns on equity and controlled funding costs, the current price could sit at a discount to long run economic value.
🐻 Synchrony Financial Bear Case
Fair value used in this bearish Narrative: about US$42.00 per share
Implied overvaluation versus the recent US$72.31 close: around 72.2%
Revenue growth assumption used in this Narrative: 22.23%
The bearish author anchors on the lowest analyst price target of US$42.00 and ties that to assumptions for revenue of about US$15.9b, earnings of US$2.9b and a future P/E of 5.9x in 2028, discounted at roughly 8.6%.
This view assumes profit margins contract from the low 30s to about 18.5% over three years, with purchase volumes under pressure from credit actions, macro risks and potentially higher costs for partnerships and technology.
Under this framework, the current share price around US$72.31 sits well above the bearish fair value, so the author sees limited upside and room for downside if credit costs rise or revenue growth does not keep pace with expenses.
Putting the two together, you can see how different assumptions on margins, required return and future valuation multiples create a wide range of possible fair values, from about US$42.00 to around US$105.00 and higher. That spread is exactly why Narratives can be useful, because they force you to decide which story about Synchrony Financial’s future you find more reasonable and what price gives you enough comfort to act.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
