DCF Studio

    SYF · NYQ · Financial Services

    Synchrony Financial

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 155.56

    Market price

    USD 75.04

    Implied upside

    +107.3%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Wrong toolThis is a financial. Banks and insurers report no meaningful operating income, and capex and working capital do not mean what a free-cashflow model assumes, so a DCF will misprice it. The model below runs on best-effort numbers - treat it as an illustration, not a valuation.
    AdjustedReported capital expenditure averages just 0.00% of revenue, which is too low to be the company's real investment - property trusts and similar structures invest through lines that are not reported as capex. Capex has been set to 3.39% of revenue so the forecast is not handed free growth. The accounts do not separate depreciation from amortisation, so the combined charge is used - if a large part of it is amortisation of an acquisition, the reported capex is probably right and this substitution is not. Override it if the reported figure is right.

    Value Per Share

    Perpetuity growth
    USD 155.56+107.3%
    Exit multiple
    USD 107.79+43.6%
    Market price
    USD 75.04

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn2bn5bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 16.3bnUSD 17.7bnUSD 19.2bnUSD 20.9bnUSD 22.7bn+8.7%
    EBITUSD 4.7bnUSD 5.1bnUSD 5.6bnUSD 6.1bnUSD 6.6bn+8.7%
    NOPATUSD 3.7bnUSD 4.1bnUSD 4.4bnUSD 4.8bnUSD 5.2bn+8.7%
    Add depreciation & amortisationUSD 552.5mUSD 600.4mUSD 652.5mUSD 709.1mUSD 770.5m+8.7%
    Less capital expenditureUSD -552.5mUSD -600.4mUSD -652.5mUSD -709.1mUSD -770.5m+8.7%
    Less increase in working capitalUSD -186.3mUSD -202.5mUSD -220.0mUSD -239.1mUSD -259.8m+8.7%
    Free cashflow to firmUSD 3.6bnUSD 3.9bnUSD 4.2bnUSD 4.6bnUSD 5.0bn+8.7%
    Discount factor0.95650.87520.80080.73270.6704-
    Present valueUSD 3.4bnUSD 3.4bnUSD 3.4bnUSD 3.3bnUSD 3.3bn-0.6%
    Present Value Of The ForecastUSD 16.8bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.206Reported 1.308, pulled toward 1.0 (Blume)
    Cost of equity11.63%Risk-free + beta x equity risk premium
    Cost of debt7.00%Implied cost of debt of 27.0% is not a credible funding cost, so risk-free + 2bp is assumed instead. Interest expense and reported debt are measuring different things - common for banks, whose interest expense includes deposits that total debt excludes.
    Market capitalisationUSD 24.4bn61.7% of capital
    Total debtUSD 15.2bn38.3% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC9.29%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 155.56

    71% of EV

    Forecast FCFF, final year
    USD 5.0bn
    Capex at depreciation, working capital in reinvestment
    USD 5.2bn
    Less reinvestment at g/ROIC (21.2% of NOPAT)
    USD -1.1bn
    Capitalised
    USD 4.1bn
    ROIC (reported)
    11.8%
    Terminal value, undiscounted
    USD 62.0bn
    Terminal value, discounted
    USD 41.6bn
    Enterprise value
    USD 58.4bn
    Less net debt
    USD 209.0m
    Equity value
    USD 58.2bn

    Exit at 4.8x EBITDA

    Value per shareUSD 107.79

    59% of EV

    Terminal value, undiscounted
    USD 35.4bn
    Terminal value, discounted
    USD 23.7bn
    Enterprise value
    USD 40.5bn
    Less net debt
    USD 209.0m
    Equity value
    USD 40.3bn

    Spread between methods: 36%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    7.29%201.92209.13217.74228.26241.45
    8.29%172.54176.61181.30186.81193.38
    9.29%150.70152.99155.56158.48161.83
    10.29%133.82135.05136.40137.88139.52
    11.29%120.38120.97121.57122.21122.88

    Outlined: this model. Green text: above today's price of 75.04. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year8.7%-9.2%-17.9pp
    EBIT margin29.1%14.3%-14.8pp
    Discount rate9.3%17.9%+8.6pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.