The Financial Sector Landscape
As the Q4 earnings season kicks off, major banks such as JP Morgan (JPM) and Bank of America (BAC) are set to report their quarterly results. However, consumer lending stocks have also shone brightly in this space, with Ally Financial (ALLY) and Synchrony Financial (SYF) standing out.
Both Ally and Synchrony are hovering near their 52-week highs and are scheduled to report their Q4 results on January 19 and 23, respectively. This raises the question of whether now is the opportune moment to consider investing in these stocks.
Recent Performance Snapshot
Ally offers a wide range of financial products and services primarily to the auto industry, while Synchrony provides credit products through various national and regional retailers, local merchants, and manufacturers. Both companies have demonstrated robust stock performance, with Ally’s shares up by 36% and Synchrony’s by 17% over the last year, outperforming the S&P 500’s 24%.
Notably, Synchrony hit 52-week highs of over $38 a share, and Ally is on the cusp of its highs at $35.78 a share.
Q4 Previews & Outlook
Despite their strong performance, Ally and Synchrony face challenges in the Q4 earnings picture. Fourth-quarter earnings estimates for Ally are projected at $0.51 per share compared to $1.08 per share in the corresponding quarter of the previous year. On the other hand, Synchrony is expecting a 22% decrease in Q4 earnings to $0.98 per share from $1.26 per share in the previous year’s quarter.
Strong Value Proposition
Reasonable valuations have been a driving force behind the recent surge in both Ally and Synchrony stocks, with Ally’s stock trading at a reasonable 10.8X forward earnings multiple and Synchrony shares at just 7.3X. Additionally, Ally offers a generous 3.5% annual dividend yield, while Synchrony’s 2.67% yield surpasses the S&P 500’s 1.4% average.
Final Thoughts
Ally Financial and Synchrony Financial’s stock both hold a Zacks Rank #3 (Hold) for now. The possibility of higher highs may hinge on their Q4 results. Yet, continuing to hold positions in these consumer finance leaders at their current levels could prove fruitful for investors.