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Barclays downgrades Synchrony Financial after Walmart drops card renewal

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Barclays downgrades Synchrony Financial after Walmart drops card renewal

Mark DeVries of Barclays Capital downgraded Synchrony Financial's stock rating to "equal-weight" from "overweight" and lowered the price target to $32 from $53.

The analyst attributed the downgrade to Walmart Inc.'s selection of Capital One Financial Corp. as its new store credit card issuer after ending its co-branded card deal with Synchrony.

DeVries wrote that the loss "unfortunately demonstrates that incumbency ... is not as big of a moat as we thought" when it comes to co-branded card partnerships. The news has overshadowed Synchrony Financial's solid second quarter with improving credit trends, added DeVries.

DeVries also wrote that he sees the loss as accretive to EPS over the long term, since Synchrony could receive a capital boost if it sells the Walmart portfolio. The company could put that money toward buybacks, which could result in EPS accretion of about 2% to the analyst's 2019 estimates, he wrote.

The analyst has set Synchrony Financial's 2018 EPS estimate at $3.59 and 2019 EPS estimate at $4.32.