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What's in Store for Synchrony Financial's (SYF) Q2 Earnings?

Synchrony Financial SYF will release second-quarter 2019 results on Jul 19, before the market opens. In the last reported quarter, the company delivered a positive surprise of 13.6%, backed by the PayPal Credit program acquisition and higher net interest income.

Let’s see, how things are shaping up prior to the announcement.

Earnings Catalysts for Q2

The Zacks Consensus Estimate for earnings is pegged at 98 cents, up 6.5% from the year-ago reported quarter. The company’s performance is likely to be boosted by an expanded purchase volume, its constant efforts in portfolio enhancement through alliances, etc.

Its Retail Card platform is expected to retain the winning streak with a solid card sale, which in turn, might have contributed to its top line. The Zacks Consensus Estimate for revenues stands at $4.1 billion, indicating an increase of 12.1% from the prior-year reported number.

The company makes constant efforts in the form of strategic partnerships to provide customers with better purchasing options. This inorganic growth initiative is likely to have further favored its online purchases platform.

Per the company’s earlier projection, there will be a slight drop in its margin in the second quarter of 2019.

Reserve build is anticipated around $100-$150 million during the period to be reported. According to Synchrony Financial’s past forecast, its net charge-offs are expected to be 20-30 basis points higher in the to-be-reported quarter when compared with the first quarter, mainly due to recovery timings and full reflection of the PayPal Credit program.

Continued capital deployment in the second quarter of 2019 is likely to have provided an additional impetus to the company’s bottom line.

However, the company might have endured elevated expenses due to investments in sales platforms, alliances, etc. Higher marketing expenses too possibly have weighed down its margins to some extent.

What the Quantitative Model Predicts

Our proven model does not conclusively show that Synchrony Financial is likely to beat on earnings this reporting cycle. This is because the stock has the right combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen, which is not the case here.You can see https://www.zacks.com/stocks/buy-list/?ADID=zp_1link&ICI... _1link">the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: Synchrony Financial has an Earnings ESP of -1.16%. This is because the Most Accurate Estimate is pegged at 97 cents, lower than the Zacks Consensus Estimate of 98 cents. You can uncover the best stocks to buy or sell before they are reported with our https://www.zacks.com/premium/esp-buy?adid=zp_article_espfil...">Earnings ESP Filter.

Zacks Rank: Synchrony Financial carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s negative ESP in the combination leaves surprise prediction inconclusive for the stock this earnings season.

We caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Some stocks worth considering from the finance sector with the perfect combination of elements to surpass estimates in the upcoming releases are as follows:

Discover Financial Services DFS is set to report second-quarter earnings on Jul 23. The stock has a Zacks Rank of 3 and an Earnings ESP of +1.00%.

RenaissanceRe Holdings Ltd. RNR is set to report second-quarter earnings on Jul 23. The stock has a Zacks Rank of 1 and an Earnings ESP of +2.96%.

MarketAxess Holdings Inc. MKTX is slated to announce second-quarter earnings on Jul 24. The stock has an Earnings ESP of +1.92% and a Zacks Rank #2.

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