Synchrony misses EPS estimates as credit quality improves
Net charge-offs fall 108bps to 5.37%, returning to target range; shares rise on $1.1B capital returns
Synchrony Financial reported fourth-quarter 2025 earnings that fell short of analyst expectations, though improving credit quality and aggressive shareholder returns helped lift the stock in early trading.
The company reported earnings per share of $2.18, missing the consensus estimate of $2.21 by 1.4%. Net earnings declined 3% year-over-year to $751 million. However, investors focused on the company's strengthening credit metrics, with net charge-offs improving 108 basis points to 5.37%, returning to the firm's target range of 5.5% to 6.0%.
Chief Executive Brian Doubles highlighted the "improved credit trajectory" and strong risk-adjusted returns, noting that the company's credit portfolio is stabilizing after a period of elevated losses. The 108-basis-point improvement marks a significant reversal from earlier in 2025, when net charge-offs reached 6.38% in the first quarter before declining to 5.16% in the third quarter.
The credit improvement overshadowed the earnings miss, with shares rising 1.2% to $77.51 in morning trading. The stock remains below its 52-week high of $88.77 but has recovered substantially from its low of $39.98 reached in October.
Synchrony returned $1.1 billion to shareholders during the quarter, including $952 million in share repurchases and $106 million in dividends. The company maintains $1.2 billion of remaining repurchase authorization, continuing an aggressive capital return program that has included multiple buyback authorizations in 2025. In October, the board approved a $1 billion increase to share repurchase authority, bringing total available capacity to $2.1 billion.
Beyond the headline credit metrics, Synchrony demonstrated underlying business strength. Net interest margin expanded 82 basis points to 15.83%, while purchase volume grew 3% to a record $49.5 billion. Book value increased 13% to $44.74 per share, reflecting the company's profitability and capital return activities.
The credit card lender has been diversifying its partnerships beyond traditional retail cards. In 2025, the company launched "Synchrony Pay Later," a buy-now-pay-later product with Amazon, allowing approved customers to split purchases of $50 or more into installments. The company also expanded its relationship with Lowe's through the acquisition of the retailer's commercial co-branded credit card portfolio, involving approximately $800 million in loan receivables that is expected to close in the first half of 2026.
Synchrony's CareCredit health and wellness financing platform continues to be a growth driver. The company is expanding CareCredit's integration with payment platforms, aiming to enable over 40,000 health and wellness providers to accept CareCredit payments at the point of sale. In June, Synchrony and CareCredit launched "Fair Financing Principles," an initiative focused on increasing transparency in healthcare financing.
Analysts maintain a positive outlook on the stock, with an average target price of $92.61, implying roughly 19% upside from current levels. Of 23 analysts covering the company, 14 rate it a buy or strong buy, while eight recommend hold and one advises selling.
The stock trades at a price-to-earnings ratio of 8.4, below many peers in the financial services sector, suggesting investors may be undervaluing the company's growth prospects amid concerns about consumer credit quality. The improving credit metrics could help narrow that valuation gap if the trend continues into 2026.
Synchrony's guidance and management commentary on the earnings call will be closely watched for insights into consumer spending trends and the sustainability of the credit quality improvement. With the economic outlook uncertain, investors will be focused on whether the company can maintain its target net charge-off range while continuing to grow loan volumes in the latter half of 2026.