Critical Analysis: Synchrony Financial (NYSE:SYF) vs. StepStone Group (NASDAQ:STEP)

Synchrony Financial (NYSE:SYF) and StepStone Group (NASDAQ:STEP) are both finance companies, but which is the better business? We will compare the two businesses based on the strength of their valuation, risk, profitability, institutional ownership, earnings, dividends and analyst recommendations.

Analyst Ratings

This is a breakdown of recent ratings and recommmendations for Synchrony Financial and StepStone Group, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Synchrony Financial	0	6	12	0	2.67
StepStone Group	0	4	3	0	2.43

Synchrony Financial currently has a consensus target price of $73.22, indicating a potential upside of 5.45%. StepStone Group has a consensus target price of $63.43, indicating a potential upside of 3.54%. Given Synchrony Financial’s stronger consensus rating and higher possible upside, research analysts plainly believe Synchrony Financial is more favorable than StepStone Group.

Profitability

This table compares Synchrony Financial and StepStone Group’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Synchrony Financial	13.00%	19.68%	2.45%
StepStone Group	-15.28%	15.21%	5.81%

Dividends

Synchrony Financial pays an annual dividend of $1.20 per share and has a dividend yield of 1.7%. StepStone Group pays an annual dividend of $0.96 per share and has a dividend yield of 1.6%. Synchrony Financial pays out 16.5% of its earnings in the form of a dividend. StepStone Group pays out -40.2% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Synchrony Financial has raised its dividend for 4 consecutive years and StepStone Group has raised its dividend for 3 consecutive years. Synchrony Financial is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Risk and Volatility

Synchrony Financial has a beta of 1.46, indicating that its share price is 46% more volatile than the S&P 500. Comparatively, StepStone Group has a beta of 1.36, indicating that its share price is 36% more volatile than the S&P 500.

Insider and Institutional Ownership

96.5% of Synchrony Financial shares are held by institutional investors. Comparatively, 55.5% of StepStone Group shares are held by institutional investors. 0.3% of Synchrony Financial shares are held by company insiders. Comparatively, 18.4% of StepStone Group shares are held by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock will outperform the market over the long term.

Earnings and Valuation

This table compares Synchrony Financial and StepStone Group”s gross revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Synchrony Financial	$16.11 billion	1.64	$3.50 billion	$7.29	9.53
StepStone Group	$1.17 billion	6.07	-$179.56 million	($2.39)	-25.63

Synchrony Financial has higher revenue and earnings than StepStone Group. StepStone Group is trading at a lower price-to-earnings ratio than Synchrony Financial, indicating that it is currently the more affordable of the two stocks.

Summary

Synchrony Financial beats StepStone Group on 13 of the 17 factors compared between the two stocks.

About Synchrony Financial

Synchrony Financial, together with its subsidiaries, operates as a consumer financial services company in the United States. It provides credit products, such as credit cards, commercial credit products, and consumer installment loans. The company also offers private label credit cards, dual co-brand and general purpose credit cards, short- and long-term installment loans, and consumer banking products; and deposit products, including certificates of deposit, individual retirement accounts, money market accounts, and savings accounts, and sweep and affinity deposits, as well as accepts deposits through third-party securities brokerage firms. In addition, it provides debt cancellation products to its credit card customers through online, mobile, and direct mail; and healthcare payments and financing solutions under the CareCredit and Walgreens brands; payments and financing solutions in the apparel, specialty retail, outdoor, music, and luxury industries, such as American Eagle, Dick's Sporting Goods, Guitar Center, Kawasaki, Pandora, Polaris, Suzuki, and Sweetwater. The company offers its credit products through programs established with a group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations, and healthcare service providers; and deposit products through various channels, such as digital and print. It serves digital, health and wellness, retail, home, auto, telecommunications, jewelry, pets, and other industries. The company was founded in 1932 and is headquartered in Stamford, Connecticut.

About StepStone Group

StepStone Group Inc. is a private equity and venture capital firm specializing in direct, fund of funds, secondary direct, and secondary indirect investments. For direct investment, it seeks to invest in private debt, venture debt, incubation, mezzanine, distressed/vulture, seed/startup, early venture, mid venture, late venture, emerging growth, later stage, turnaround, growth capital, industry consolidation, recapitalization, buyout investments in mature and middle market companies. It prefers to invest in natural resources, technology, healthcare, services, materials, manufacturing, consumer durables, apparel, hotels, restaurants and leisure, media, retailing, power, utilities consumer staples, financials, telecommunication services, clean energy/renewables, transport, social, natural capital, infrastructure, corporate, real estate, credit and real asset. The firm invests globally with a focus on United States, North America, Europe, Asia, Latin America, Middle East, Africa, Brazil, Mexico, Argentina, Colombia, New Zealand, China, India, Korea, Japan, Taiwan, and Australia region. The firm invests between 5% and 40% in emerging markets. For fund of fund investment, it seeks to invest in private equity funds, venture capital funds, Special situation funds, Real estate funds, Infrastructure funds, mezzanine funds, and turnaround/distressed funds. It considers investments in both domestic and international funds. It also seeks to make co-investments and follow-on investments and considers partial interests in funds. StepStone Group Inc. was founded in 2007 and is based in New York, New York with additional offices across North America, South America, Europe, Australia and Asia.