The consumer financial services industry’s growth prospects look promising thanks to the convenient access to digital financial services, growing demand for loans, rising consumer spending, and integration of advanced technologies. Services like online banking, instant payments, and on-demand credit define the sector's significant transformation.
Amid this backdrop, it could be wise to consider buying fundamentally strong financial stocks: Synchrony Financial (SYF), LendingTree, Inc. (TREE), and Yiren Digital Ltd. (YRD).
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s going on in the financial industry.
The financial industry is crucial for shaping economies and facilitating various transactions and activities. Financial services include investment brokerage, insurance, real estate, banking, asset management services, wealth management, Buy Now Pay Later (BNPL), etc. The financial services market is projected to grow at a CAGR of 7.6% to reach $44.93 trillion by 2028.
Changing consumer lifestyles, technological advancements, government policies on financial inclusion, rising disposable incomes, and the increasing popularity of personalized financial solutions are the key growth drivers for consumer financial services.
Financial institutions are now enhancing user experiences through personalized services and faster transaction processing by utilizing advanced technologies such as artificial intelligence, data analytics, and blockchain.
The growing shift towards digital payments and online transactions presents significant growth opportunities for consumer finance companies. The global consumer finance market is expected to reach $1.96 trillion by 2029, growing at a CAGR of 7.1%.
Additionally, a tight labor market, a strong economy, and an increase in underlying inflation have deterred the Federal Reserve from cutting interest rates in March. Economists now anticipate that borrowing costs could continue to stay higher for longer.
This may prove advantageous for financial companies as their revenues rise in a high-interest-rate environment. Investors’ interest in financial stocks is evident from the Financial Select Sector SPDR ETF’s (XLF) 22.3% returns over the past nine months.
Considering these conducive trends, let’s analyze the fundamentals of the three financial stocks.
Synchrony Financial (SYF)
SYF and its subsidiaries operate as a consumer financial services company in the United States. They provide credit products such as credit cards, commercial credit products, and consumer installment loans.
On March 4, 2024, SYF completed its acquisition of Ally Lending, strengthening its foothold in home improvement and health financing. It now offers both revolving credit and installment loans at the point of sale, aiming to enrich consumer options, aid merchant expansion, and boost earnings per share for 2024.
On January 30, 2024, SYF and PatientNow announced a partnership, integrating CareCredit into PatientNow's cloud-based practice management solution, offering financing options and digital account management for 4,800 cosmetic businesses nationwide, simplifying patient financing and practice operations.
In terms of the trailing-12-month net income margin, SYF’s 29.21% is 24.4% higher than the 23.47% industry average. Its 1.91% trailing-12-month Return on Total Assets is 75.8% higher than the 1.08% industry average. Likewise, its 17.35% trailing-12-month Return on Common Equity is 58.9% higher than the industry average of 10.92%.
SYF’s net interest income for the fourth quarter ended December 31, 2023, increased 8.8% year-over-year to $4.47 billion. Its net earnings available to common stockholders came in at $429 million. In addition, its net interest income increased 8.8% year-over-year to $4.47 billion.
The company’s cash and equivalents increased 38.5% over the prior-year quarter to $14.26 billion. Also, its total assets rose 12.4% year-over-year to $117.48 billion.
Analysts expect SYF’s EPS and revenue for the quarter ending March 31, 2024, to increase 5.2% and 18.6% year-over-year to $1.42 and $3.75 billion, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 34.4% to close the last trading session at $41.57.
SYF’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #14 out of 45 stocks in the B-rated Consumer Financial Services industry. It has a B grade for Value, Momentum, and Quality. To access SYF’s grades for Growth, Stability, and Sentiment, click here.
LendingTree, Inc. (TREE)
TREE and its subsidiaries operate an online consumer platform in the United States. They operate through three segments: Home, Consumer, and Insurance. Company offerings include mortgages, loans, credit cards, deposit accounts, insurance, financial analysis, and investment and banking services.
In terms of the trailing-12-month gross profit margin, TREE’s 94.24% is 57.8% higher than the 59.71% industry average. Likewise, its 0.67x trailing-12-month asset turnover ratio is 216.2% higher than the industry average of 0.21x.
TREE’s total revenue for the fiscal fourth quarter that ended December 31, 2023, amounted to $134.40 million. The company’s adjusted net income attributable and adjusted net income per share came in at $3.60 million and $0.28, respectively. Also, its adjusted EBITDA stood at $15.46 million.
Street expects TREE’s EPS for the quarter ending March 31, 2024, to increase 44.9% year-over-year to $0.36. Its revenue for the quarter ending September 30, 2024, is expected to increase 10.2% year-over-year to $171.08 million. Over the past six months, the stock has gained 138.8% to close the last trading session at $40.22.
It’s no surprise that TREE has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Value, Sentiment, and Quality. Within the Consumer Financial Services industry, it is ranked #15 out of 45 stocks. In total, we rate TREE on eight different levels. Beyond what we have stated above, we also have given TREE grades for Growth, Momentum, and Stability. Get all the TREE ratings here.
Yiren Digital Ltd. (YRD)
Based in Beijing, the People's Republic of China, YRD operates an AI-powered platform. Its platform provides a suite of financial and lifestyle services in China. The company delivers digital financial services, insurance solutions, as well as consumption and lifestyle services.
In terms of the trailing-12-month EBITDA margin, YRD’s 54.10% is 158.5% higher than the 20.92% industry average. Its 21.33% trailing-12-month Return on Total Assets is considerably higher than the 1.08% industry average. Additionally, its 53.93% trailing-12-month EBIT margin is 142.7% higher than the 22.22% industry average.
For the third quarter that ended September 30, 2023, YRD’s net revenue increased 55.9% year-over-year to RMB1.31 billion ($182.02 million). The company’s net income and net income per ADS stood at RMB554.42 million ($77.03 million) and RMB6.22 per share, up 105.1% and 108.7% year-over-year, respectively.
In addition, the company’s adjusted EBITDA came in at RMB692.69 million ($96.25 million), up 89.8% over the prior-year quarter.
Over the past six months, YRD’s stock has gained 102.5% to close the last trading session at $4.94.
YRD’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Value and Quality and a B for Momentum and Sentiment. It is ranked first out of 9 stocks in the A-rated Foreign Consumer Finance industry. To see YRD’s Growth and Stability ratings, click here.
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SYF shares were trading at $41.71 per share on Friday morning, up $0.14 (+0.34%). Year-to-date, SYF has gained 9.93%, versus a 8.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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