Synchrony IPO Price Set Today; Here's What to Watch for as SYF Stock Hits Market By Kyle Anderson

The Synchrony IPO price will be announced later today (Wednesday), as investors wait to learn more about the largest IPO of 2014 to date.

Synchrony Financial (NYSE: SYF) is a spin-off of General Electric Co. (NYSE: GE) and is GE's consumer-finance arm. The company generates 69% of its revenue from its retail credit card segment, which counts Amazon.com Inc. (NYSE: AMZN), Wal-Mart Stores Inc. (NYSE: WMT), and The Gap Inc. (NYSE: GPS) as its largest partners.

Synchrony Financial is expected to raise $3.1 billion by offering 125 million shares at a range of $23 to $26 per share. If Synchrony prices its shares at the top end of that range, it would end up raising as much as $3.25 billion.

Synchrony is expected to have a market value of approximately $20.3 billion following the initial public offering.

Raising $3.1 billion would make the Synchrony IPO the largest U.S. public offering since Facebook Inc. (Nasdaq: FB) raised $16 billion in May 2012. Synchrony should easily outpace the second-largest IPO of 2014, Ally Financial Inc. (NYSE: ALLY), which raised $2.6 billion in April.

In the Synchrony IPO filing, the company reported 2013 net interest income of $10.57 billion, which was an 11% increase from the previous year. The income spike was attributed to higher credit card spending and a decline in net charge-offs. A net charge-off, or "bad debt," is a loan that the company can't collect on.

While income was on the rise in 2013, profits were down. Synchrony reported profit of $2 billion, which was a 6.6% drop from the previous year. The company cited increased costs and a boost to its fund used to cover bad loans as reasons for down profit.

SYF stock will begin trading on the New York Stock Exchange tomorrow morning.

The lead underwriters on the deal include Bank of America Merrill Lynch, Barclays Plc. (NYSE ADR: BCS), Credit Suisse Group AG (NYSE: CS), Deutsche Bank AG (NYSE: DB), Goldman Sachs Group Inc. (NYSE: GS), JPMorgan Chase & Co. (NYSE: JPM), and Morgan Stanley (NYSE: MS).

The Synchrony Financial IPO takes place during the hottest year for IPOs since the dot-com era. According to Renaissance Capital, 168 IPOs have come to market in 2014, the highest number since 2000. Those 168 companies have averaged a first-day gain of 14%, and an overall return of 11.3% from their offer prices.

So a first-day gain for SYF tomorrow would fall in line with the overall IPO market of 2014, but potential investors will be looking past the IPO market when it comes to SYF stock's value...

For Synchrony, one of its biggest challenges moving forward will be identifying growing retailers to work with.

"One of the challenges is identifying new opportunities because all of the largest retailers are often going to be locked up in a contract that's anywhere from three to seven years," Mercator Advisory Group Inc. payments analyst Michael Misasi told Bloomberg. "[Synchrony needs to] identify who are the fastest growing retailers."

The fact that Synchrony counts huge retailers like Amazon and Wal-Mart as top partners is important, but investors will want to see expansion.

Another factor that could impact SYF stock following its IPO is the condition of the consumer finance market.

Similar companies like Ally Financial and Santander Consumer USA Holdings Inc. (NYSE: SC) have both foundered since holding IPOs this year. SC is down nearly 18% from its offer price in January, while ALLY is down more than 7% since offering shares in April.

Finally, the company's growing revenue is in focus for investors. While profits were down, the company is still showing strong growth, which has some analysts bullish.

"It's definitely an above-average growth profile," John Hancock asset management senior analyst Michael Mattioli told The Wall Street Journal. "All the trends in consumer credit just keep getting better. We don't know how long that lasts for - everything's cyclical - but so far, it's excellent."

A first-day gain for SYF stock would be in line with the IPO market's performance this year, but moving forward the company's growth figures will be most important.

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• Bloomberg: GE Overhang Looms for Synchrony Before Planned IPO