Synchrony Financial: A Decent New Preferred Stock IPO

11/27/19

Summary

  • Overview of Synchrony Financial's new preferred stock - SYF-A.
  • A brief look at the company.
  • Comparison with the sector.
  • A comparison with the other below investment grade preferred stocks that pay a fixed interest rate.
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Introduction

Our goal is to present to you our IPO analysis for every new fixed-income security that enters the market and to find out if there is any trading potential. In this article, we want to shed light on the newest Preferred Stock issued by Synchrony Financial (SYF). Even though the product may not be of interest to us and our financial objectives, it definitely is worth taking a look at.

The New Issue

Before we submerge into our brief analysis, here is a link to the 424B5 Filing by Synchrony Financial - the prospectus.

Source: SEC.gov

For a total of 30M shares issued, the total gross proceeds to the company are $750M. You can find some relevant information about the new preferred stock in the table below:

Source: Author's spreadsheet

Synchrony Financial 5.625% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A (NYSE: SYF-A) pays a qualified fixed dividend at a rate of 5.625%. The new preferred stock has a 'BB-' Standard & Poor's rating and is callable as of 11/15/2024. Currently, the new issue trades a little above PAR at a price of $25.40 and has a 5.54% Current Yield and YTC of 5.26%

Here is how the stock's YTC curve looks like right now:

Source: Author's spreadsheet

The Company

Synchrony Financial is a consumer financial services company. The Company provides a range of credit products through programs it has established with a group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and healthcare service providers. The Company's revenue activities are managed through three sales platforms: Retail Card, Payment Solutions and CareCredit. It offers its credit products through its subsidiary, Synchrony Bank (the Bank). Through the Bank, it offers a range of deposit products insured by the Federal Deposit Insurance Corporation (FDIC), including certificates of deposit, individual retirement accounts (IRAs), money market accounts and savings accounts. The Company offers three types of credit products: credit cards, commercial credit products and consumer installment loans. The Company also offers a debt cancellation product. It offers two types of credit cards: private label credit cards and Dual Cards.

Source: Reuters.com| Synchrony Financial

Below, you can see a price chart of the common stock, SYF:

Source: Tradingview.com

For 2019, the common stock is expected to have paid ? $0.86 yearly dividend. With a market price of $37.19, the current yield of SYF is at 2.31%. As an absolute value, this means it pays $570.56M in dividends yearly. For comparison, the yearly dividend expenses for the newly issued Series A preferred stock is around $16.88M.

In addition, with a market capitalization of around $24.24B, SYF is the 7th largest company in the "Credit Services" sector (according to Finviz.com).

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