Synchrony: Increasing Fair Value by 8% on Strong Loan Growth and Better-Than-Expected Charge-Offs

Returning to no-moat-rated Synchrony Financial following second-quarter results, we are raising our fair value estimate to $42 per share from $39. Around $1.50 of the increase comes from earnings since our last update. About $1 comes from higher loan growth assumptions. The remaining $0.50 comes from lower near-term net charge-off expectations; while Synchrony’s credit costs have risen in 2023, they have done so slower than we initially expected. In our view, the shares are modestly undervalued at their current price.