Amid the upcoming wave of Q4 earnings reports from financial giants like JP Morgan, Bank of America, and others, consumer lending stocks have emerged as bright spots in this season. Among them, Ally Financial and Synchrony Financial have particularly shined, hovering near their 52-week highs.
Recent Performance Overview
As diversified financial service providers, Ally offers a broad range of financial products and services primarily to the auto industry, while Synchrony provides a wide range of credit products through various national and regional retailers, local merchants, and manufacturers. In the past year, Ally’s stock performance has demonstrated strength, with shares up +36% outpacing the S&P 500’s +24%, while Synchrony’s +17% has also been impressive. Notably, Synchrony hit 52-week highs of over $38 a share, and Ally is poised just below its high of $35.78 a share seen last February.
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Q4 Previews & Outlook
Looking ahead, it is anticipated that both companies will face a challenging Q4 earnings picture, particularly when compared to their strong prior year quarters. Fourth-quarter earnings estimates for Ally are currently slated at $0.51 a share, down from $1.08 per share in Q4 2022, and Q4 sales are projected to decline by -9% to $2 billion. However, FY24 earnings are forecasted to rebound and rise 14% to $3.57 per share, showing signs of recovery on the horizon.
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For Synchrony, Q4 earnings are expected to decrease by -22% to $0.98 a share versus $1.26 per share in the comparative quarter. Nevertheless, FY24 earnings are anticipated to rebound and rise 7% to $5.51 a share, while total sales are expected to have risen 8% in FY23 and projected to continue growing by 7% in the following year, reaching $18.17 billion.
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Strong Value
Despite the perceived loss of post-pandemic momentum on their bottom lines, reasonable valuations have been a primary force behind the recent surge in both stocks. Ally’s stock still trades at a very reasonable 10.8X forward earnings multiple, while Synchrony shares trade at just 7.3X. Additionally, Ally currently offers a generous 3.5% annual dividend yield, and Synchrony’s 2.67% exceeds the S&P 500’s 1.4% average, providing more value to investors.
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
Takeaway
Currently, Ally Financial and Synchrony Financial’s stock both hold a Zacks Rank #3 (Hold). While the possibility of higher highs may largely depend on their Q4 results, maintaining positions in these consumer finance leaders may continue to pay off at their current levels.