Join us for the next installment of our latest initiative to take on the large and rapidly growing payments and cards industry, offering fresh perspective and a detailed contextualization of the risk and return profiles underlying the various players in the ecosystem.
Having begun our journey with the industry's open and closed-loop payment networks, V, MA, AXP, DFS, and having stopped along the way to publish on card focused lender COF, and having now tackled payment service providers SQ and PYPL, we next turn our attention to the largest issuer of private label credit cards, Synchrony Financial (SYF).
Bulls cite the prospect for new program launches, recent exciting deal wins, the belief of continuing strength in the domestic consumer, and a stronger, more defensible portfolio following Walmart's move to COF. However, our analysis concludes that SYF is much more like a ice cube on a hot summer's day with both secular and cyclical headwinds poised to accelerate the melt.
KEY POINTS OF DISCUSSION:
- A discussion of the deteriorating value proposition, for both merchants and consumers, of private label cards, evidenced by a declining share of total store spend
- A thorough look at the double-edged sword of retailer share arrangements, focusing investor attention on the increasingly lose / lose nature of such arrangements
- The death of brick and mortar and its implications, namely the conclusion that the private label card model does not translate well in the increasingly dominant world of e-commerce
- While contract extensions with major store parents are in place, we draw on the experienced insights of the Hedgeye Retail Team to cast serious shadow on the outlook for some of SYF's major brick and mortar partners like JCPenney and GAP
- A reminder of late-cycle realities: elevated loan loss rates, increased defaults, higher credit costs, slower loan growth, and highly sensitized investor sentiment to the consumer finance space amid deteriorating economic conditions
- With the Hedgeye Macro Team signalling a transition into Quad IV, we highlight SYF's abysmal record under an economic regime characterized by decelerating growth and inflation
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