Synchrony Financial (SYF) operates as a consumer financial services company providing specialized financing programs and consumer banking products to auto, retail, home, and other industries. On the other hand, Ally Financial Inc. (ALLY) is a bank holding company providing various digital financial products and services to consumer, commercial, and corporate customers, primarily in the United States and Canada.
While the interest-rate environment remains low, the consumer financial services sector is witnessing a solid recovery thanks to increasing financial transactions and capital market activities. Despite high inflation, spending on services and discretionary items has increased significantly, increasing the use of online payment methods amid the hybrid lifestyle. Moreover, the growing technological innovation and rapid adoption of digital services should enhance the consumer financial services market in the upcoming months. According to a Research and Markets report, the global consumer finance market is expected to grow at a CAGR of 5% by 2026. Therefore, both SYF and ALLY should benefit.
ALLY has gained 48.6% over the past year, while SYF has returned 40%. However, SYF’s 30.5% gains year-to-date are higher than ALLY’s 29.9% returns. Moreover, SYF is the clear winner with 12.9% gains versus ALLY’s 7.2% returns in terms of the past nine months’ performance.
But which of these two stocks is a better buy now? Let’s find out.
On October 14, 2021, SYF announced an expanded strategic partnership with Fiserv, Inc. (FISV). Michael Bopp, EVP, and Chief Growth Officer, SYF, said, "This strategic partnership deepens Synchrony's partner ecosystem and reinforces our growth strategy to expand and accelerate innovative product offerings through additional distribution channels."
On December 1, 2021, ALLY announced that it had acquired Fair Square Financial, a digital-first credit card company. ALLY’s CEO Jeffrey J. Brown said, "The addition of Fair Square and its credit card offerings will enhance our suite of consumer products and align with our long-term strategy to be the leading full-service digital bank."
Recent Financial Results
SYF’s net interest income increased 5.8% year-over-year to $3.66 billion for the fiscal third quarter ended September 30, 2021. The company’s net earnings grew 264.5% year-over-year to $1.14 billion. Also, its EPS came in at $2, up 284.6% year-over-year.
ALLY’s adjusted total net revenue increased 26% year-over-year to $2.11 billion for the fiscal third quarter ended September 30, 2021. The company’s core net income grew 65% year-over-year to $782 million. Also, its adjusted EPS came in at $2.16, up 72% year-over-year.
Past and Expected Financial Performance
SYF’s revenue and EPS grew at CAGRs of 7.2% and 31.1%, respectively, over the past three years. Analysts expect SYF’s revenue to increase 1.8% for the quarter ending December 31, 2021, and 6.5% in fiscal 2022. The company’s EPS is expected to grow 20.2% for the quarter ending December 31, 2021, and 208% in fiscal 2021. Moreover, its EPS is expected to grow at 38.4% per annum over the next five years.
On the other hand, ALLY’s revenue and EPS grew at CAGRs of 13.1% and 46%, respectively, over the past three years. The company’s revenue is expected to decrease 7.2% for the quarter ending December 31, 2021, but increase 6% in fiscal 2022. Its EPS is expected to grow 22.5% for the quarter ending December 31, 2021, and 182.2% in fiscal 2021. Also, ALLY’s EPS is expected to grow at 7.3% per annum over the next five years.
SYF’s trailing-12-month revenue is 1.08 times what ALLY generates. SYF is also more profitable with a net income margin of 44.87% compared to ALLY’s 36.02%.
Furthermore, SYF’s ROE and ROA of 31.85% and 4.42% are higher than ALLY’s 19.70% and 1.70%, respectively.
In terms of forward non-GAAP P/E, SYF is currently trading at 6.57x, 20.8% higher than ALLY’s 5.44x. Moreover, SYF’s forward non-GAAP PEG ratio of 0.13x is 30% higher than ALLY’s 0.10x.
So, ALLY is relatively affordable here.
SYF has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. On the other hand, ALLY has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
SYF has a grade of B for Quality. This is justified given SYF's 4.51% trailing-12-month ROTA, 231.8% higher than the industry average of 1.36%. On the other hand, ALLY has a Quality grade of C, in sync with its 1.73% trailing-12-month ROTA, 27.1% higher than the industry average of 1.36%.
Of the 53 stocks in the Consumer Financial Services industry, SYF is ranked #6. In comparison, ALLY is ranked #16.
The rapid technological innovations and the recovering economy are driving the growth of the consumer financial services sector. So, SYF and ALLY should benefit. However, it is better to bet on SYF now because of its higher profitability and growth prospects.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Consumer Financial Services industry here.
Author: Riddhima Chakraborty
3 5G Stocks that Investors Should Continue to Accumulate
Primary Ticker: NXP Semiconductors N.V.(NASDAQ:NXPI)
Secondary Ticker: QRVO, RMBS
Teaser: Even though the omicron coronavirus variant continues to worry investors, the 5G industry could continue to gain the upcoming months with increased hybrid working. So, it could be wise to scoop up the shares of quality 5G stocks such as NXP Semiconductors (NXPI), Qorvo (QRVO), and Rambus (RMBS).
Amid the ongoing rapid digitalization, consistent advancements in technologies such as 5G has become crucial. With the omicron variant of the coronavirus having been identified in at least 17 U.S. states, the demand for 5G technologies is only expected to surge owing to the continued hybrid work culture. Investors’ interest in the sector is evident from the Defiance 5G Next Gen Connectivity ETF’s (FIVG) 2.9% gains over the past three months and 18.9% year-to-date returns.
The ease of operating wireless 5G supported devices with high and uninterrupted speed drives the overwhelming demand. According to a Report Ocean report, the global 5G technology market is expected to grow more than 49.1% during 2018-2025.
NXP Semiconductors N.V. (NXPI)
Headquartered in Eindhoven, the Netherlands, NXPI offers various semiconductor products. The company’s segments include High Performance Mixed Signal (HPMS), Standard Products (SP), Corporate, and Other. Also, its product portfolio comprises Wi-Fi, and Wi-Fi/Bluetooth integrated SoCs, analog, and interface.
On November 10, NXPI announced a collaboration with the Ford Motor Company (F) to deliver enhanced driver experiences, convenience, and services across its global fleet of vehicles. Kurt Sievers, the CEO of NXPI, said, “NXP is helping Ford push the boundaries of what we all expect from a car by providing engaging in-car user experiences and over-the-air updates that continuously improve a vehicle beyond the date it drives off the lot.”
NXPI’s revenue increased 26.2% year-over-year to $2.86 billion for the fiscal third quarter ended October 3, 2021. Its non-GAAP operating income increased 63.7% year-over-year to $959 million, while its adjusted EBITDA increased 51.9% year-over-year to $1.11 billion.
Analysts expect NXPI’s revenue to increase 28% year-over-year to $11.03 billion in fiscal 2021. Its EPS is expected to grow 73.2% year-over-year to $10.62 in the current year. In addition, it surpassed Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 43% to close Friday’s trading session at $227.12.
NXPI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its weighting.
NXPI has an A grade for Momentum and a B grade for Growth, Value, Quality, and Sentiment. Within the A-rated Semiconductor & Wireless Chip industry, it is ranked #17 of 100 stocks. Click here to see NXPI’s rating for Value as well.
Qorvo, Inc. (QRVO)
QRVO develops and commercializes technologies and products for wireless and wired connectivity worldwide. The company operates through two segments: Mobile Products and Infrastructure and Defense Products.
On November 3, 2021, QRVO announced that it had acquired Princeton, New Jersey-based United Silicon Carbide (UnitedSiC). Philip Chesley, the president of Qorvo IDP, said, “The addition of United Silicon Carbide to our IDP business significantly expands our market opportunities in high-power applications. This acquisition enables Qorvo to deliver high-value, best-in-class intelligent power solutions covering power conversion, motion control, and circuit protection applications.”
QRVO’s non-GAAP revenue increased 13% sequentially to $1.26 billion for the fiscal second quarter ended October 2, 2021. The company’s non-GAAP net income came in at $384.50 million, up 19.2% sequentially. Also, its non-GAAP EPS increased 20.8% sequentially to $3.42.
For fiscal 2022, analysts expect QRVO’s revenue to grow 15% year-over-year to $4.62 billion. In addition, the company’s EPS is expected to increase 22.1% year-over-year to $11.89 in the current year. Also, it surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 5.4% since hitting its 52-week low of $142.17 on December 2, 2021, to close Friday’s trading session at $149.91.
QRVO’s strong fundamentals are reflected in its POWR ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
In addition, it has an A grade for Quality and a B grade for Value. It is ranked #30 in the same industry. Click here to see the additional POWR Ratings for QRVO (Growth, Sentiment, Momentum, and Stability).
Rambus Inc. (RMBS)
Operating for more than three decades, RMBS provides chips and intellectual property (IP) that enable performance improvements for data centers and other markets. The company’s offerings include DDR5, DDR4, and DDR3 memory interface chips. Also, it offers a portfolio of physical interface and companion digital controllers through Northwest Logic, Inc.
On September 21, RMBS announced extending its patent license agreement with Kioxia Corporation. Kit Rodgers, the company’s senior vice president of technology partnerships and corporate development, said, “The Rambus patent portfolio covers foundational technologies for the semiconductor industry, including the flash memory segment, that help improve the performance of the most advanced systems.”
RMBS’ total revenue for the fiscal third quarter ended September 30, 2021, was $81.28 million, up 42.8% year-over-year. Its gross profit increased 50.9% year-over-year to $62.86 million. Also, its net income came in at $3.68 million compared to a loss of $12.74 million in the year-ago period.
Analysts expect RMBS’ revenue to increase 12.6% year-over-year to $505.48 million in fiscal 2022. Its EPS is expected to be $1.35 in the current year, up 9.8% year-over-year. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 64.4% to close yesterday’s trading session at $27.11.
It’s no surprise that RMBS has an overall B rating, which equates to a Buy in our proprietary rating system. In addition, it has an A grade for Growth and a B grade for Quality.
RMBS is ranked #41 in the same industry. In addition to the POWR Ratings I’ve just highlighted, we’ve also rated the stock for Value, Momentum, Stability, and Sentiment. Click here to get all the RMBS ratings.
SYF shares were unchanged in after-hours trading Monday. Year-to-date, SYF has gained 36.25%, versus a 23.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.Synchrony vs. Ally: Which Consumer Financial Services Stock is a Better Buy? appeared first on StockNews.com