Synchrony Financial SYF is set to acquire Ally Financial’s ALLY point-of-sale financing business. The deal encompasses a substantial portfolio, including $2.2 billion in loan receivables. It will establish Synchrony as a key player in the home improvement services and healthcare financing sectors. The acquired portfolio boasts connections with nearly 2,500 merchant locations and serves over 0.45 million active borrowers.
The transaction, subject to customary closing conditions, is projected to be concluded in the first quarter of 2024.
Creating a Differentiated Industry Solution
The transaction marks a pivotal moment for Synchrony, as it positions it to offer a unique and comprehensive solution in the industry. Synchrony plans to introduce both revolving credit and installment loans at the point of sale within the home improvement vertical, expanding its multi-product strategy. The move extends Synchrony's reach into high-growth specialty areas, including roofing, HVAC, windows and health-related services. Synchrony's president and CEO, Brian Doubles, emphasized the strategic fit, highlighting the unlocking of value and operational efficiency through the integration of products and teams.
Unlocking Growth and Operational Efficiency
Doubles expressed excitement about the growth opportunity, describing the acquisition as a catalyst for Synchrony's expansion in home improvement and health and wellness platforms. By offering its multi-product portfolio to nearly 2,500 Ally Lending merchant locations, Synchrony aims to achieve economies of scale while diversifying its merchant base. The move aligns with Synchrony's overarching strategy of enhancing its position in key markets through well-timed and synergistic acquisitions.
On the other hand, the divestiture would help Ally Financial direct resources toward growing its business.
Financial Impact and Expectations
Ally Financial's CEO Jeff (JB) Brown highlighted the transaction's role in optimizing capital allocation, emphasizing the approximately 15 basis points increase in the Common Equity Tier 1 ratio. The sale is anticipated to be modestly accretive to tangible book value and earnings per share in 2024. On the other hand, Synchrony expects the acquisition to contribute to full-year 2024 earnings per share, with an attractive internal rate of return and a tangible book value earnback estimated at approximately three-and-a-half years.
Zacks Rank and Price Performance
SYF currently carries a Zacks Rank #3 (Hold). Shares of Synchrony have gained 28.9% in the past three months compared with the industry’s 23% growth.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the same space are American Express AXP, Euronet Worldwide, Inc. EEFT and Blue Owl Capital Corporation OBDC, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AXP delivered a trailing four-quarter average earnings surprise of 0.14%. The stock has gained 26.7% in the past three months. The Zacks Consensus Estimate for AXP’s 2024 earnings has moved 3 cents higher in the past seven days.
Euronet delivered a trailing four-quarter average earnings surprise of 4.74%. The stock has gained 24% in the past three months. The Zacks Consensus Estimate for EEFT’s 2024 earnings has moved 1 cent higher in the past 60 days.
Blue Owl delivered a trailing four-quarter average earnings surprise of 3.55%. The stock has gained 12.9% in the past three months. The Zacks Consensus Estimate for OBDC’s 2024 earnings has moved 2 cents higher in the past 60 days.
Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.