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Stock Strategist

Synchrony's on Its Own

We like the business, which is now separate from GE, and think it's undervalued.

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 Synchrony Financial (SYF) and General Electric (GE) have concluded the offering to exchange common shares of GE for Synchrony. With the offering oversubscribed by 3.2 times, the exchange rate has been set at 1.0505 shares of Synchrony common stock for each share of GE. The consummation of the transaction completes the separation of Synchrony from General Electric. The exchange will reduce the outstanding float of GE by 6.6% and, based on the Nov. 16 closing price, is the equivalent of repurchasing $20.4 billion in GE common stock.

We like Synchrony's overall business and believe it is undervalued relative to our fair value estimate of $37 per share. Synchrony does not currently pay a dividend. However, it will submit a capital return plan under the Federal Reserve's Comprehensive Capital Analysis and Review in anticipation of returning capital to shareholders during 2016. Our initial estimate is that Synchrony would meet little resistance in returning 30% of net income to shareholders.

Dan Werner does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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