Baird downgraded Synchrony Financial (SYF) to Neutral from Outperform, citing elevated credit risk and slowing loan growth. The firm maintained its $82 price target, reflecting cautious optimism on long-term fundamentals.
- SYF downgraded to Neutral from Outperform by Baird
- Price target remains unchanged at $82
- Third-quarter net charge-offs rose to 3.8% of average loans
- Loan growth slowed to 4.5% year-over-year
- Net income declined 4.1% year-over-year
- Return on equity fell to 10.8%
Baird has adjusted its recommendation on Synchrony Financial (SYF) to Neutral, stepping back from its previous Outperform rating. The move follows concerns over rising delinquency trends and tightening credit underwriting standards, particularly in the company's retail credit portfolio. Despite these risks, Baird sees value in SYF's stable earnings and strong balance sheet, supporting its unchanged $82 price target. The downgrade comes as SYF reported third-quarter net charge-offs rose to 3.8% of average loans, up from 3.1% in the prior year. Total loans grew 4.5% year-over-year, a slowdown from the 8% growth seen in 2023. These metrics signal increasing pressure on credit quality, especially as interest rates remain elevated and consumer spending shows signs of moderation. SYF’s non-interest expense growth outpaced revenue, rising 7.2% in the quarter compared to 5.3% revenue growth. This margin compression affects profitability, with net income declining 4.1% year-over-year despite a 1.9% increase in total assets. The firm’s return on equity dipped to 10.8%, below its historical average of 12.5%. The shift in rating has prompted a modest sell-side reaction, with SYF’s stock down 1.2% in early trading. Investors, analysts, and portfolio managers monitoring consumer finance equities are reassessing exposure to credit card issuers with high retail exposure. The change affects institutional strategies focused on high-yield consumer credit assets.