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Synchrony Financial

BTIG research initiated buy coverage on Synchrony Financial

BTIG research initiated buy coverage on Synchrony Financial (NYSE:SYF), the former GE financial credit card unit that opened up at $23 per share today after moving 125 million shares in an IPO Wednesday.

The pricing on this offering was at the low end of expectations, the Wall Street Journal noted. This lower end of the range pricing came amid concerns about the quality of Synchrony’s assets, meaning the default potential – an issue that blew up in 2008 – might offset gains the card issuer is making in private-label and store-branded cards.

BTIG sees value despite the credit quality risk. They say credit card spending should rise, lifting Synchrony Financial (NYSE:SYF)’s shares – particularly as the company is already the largest private label credit card firm based on purchase volume and receivables, the report notes. Trading just 12 times forward 2016 earnings projections, this $2.52 per share earnings should command a valuation of $30 per share in the future, the report speculates.

Synchrony Financial has strong visibility into future revenue

BTIG says Synchrony Financial (NYSE:SYF) has strong visibility into future revenue with a strong customer base. The report also noted their loyalty program should increase usage of the cards on its back end e-commerce sales platforms, an interesting wrinkle on the credit card revenue game.

It is this online retailing angle that has unique possibilities. The BTIG report notes Synchrony Financial (NYSE:SYF) has access to customer purchase patterns and payment histories to over 100 million customers.  Further, they have a ready made relationship and inexpensive communication channel with which to reach these consumers.

The report notes that while Synchrony Financial (NYSE:SYF) might face hiring borrowing costs now that it is stand-alone from the GE mothership, the additional costs could be offset by direct deposits the bank vacuums up from Synchrony Bank.

Independent analysis points to another issue.  In order to become the world’s largest private-label credit card supplier, did Synchrony Financial (NYSE:SYF) have to lower credit standards?  Most deals of this nature have a built in revenue stream based on cards issues or fees charges.  The looser the credit standards, the more revenue the private label credit card company generates for its partner.