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Jefferies raises Bread Financial shares target on improved credit data

EditorEmilio Ghigini
Published 2024-07-09, 08:52 a/m
BFH
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On Tuesday, Jefferies adjusted its price target for Bread Financial Holdings (NYSE:BFH), increasing it to $45.00 from the previous $35.00, while the firm retained a Hold rating on the stock. The adjustment follows Bread Financial's recent investor day revelations and an analysis of May's managed credit data.

Bread Financial management has expressed confidence in reducing their reserve rate through the year after confirming that net charge-offs (NCOs) peaked in May at 8.8%. Delinquencies (DQs) showed a slight month-over-month improvement, dropping by 10 basis points to 5.9%, though they still exceed the pre-pandemic average of 5.0%. Despite being high, the May NCO rate aligns with the company's guidance.

The financial firm's second quarter of 2024 is projected to see Net Interest Income of $980 million, marking a slight decrease of 1% year-over-year. Meanwhile, average loan receivables have seen a growth of 1.9% year-over-year. Projections also include a provision for credit losses of $347 million and an Allowance for Loan and Lease Losses (ALLL) totaling $2.198 billion.

The current consensus forecasts might not fully account for the updated guidance from Bread Financial's management, which includes a quarter-over-quarter decrease in net interest margin (NIM), NCOs peaking at 8.8%, ALLL representing 12.2% of loans, and flat year-over-year end-of-period loans when excluding the impact of the Dell (NYSE:DELL) acquisition.

In other recent news, Bread Financial Holdings has been the subject of several recent analyst adjustments. RBC (TSX:RY) Capital lifted its price target for the company from $38.00 to $45.00, citing the company's successful efforts in refining its balance sheet and diversifying its operations.

Similarly, Evercore ISI upgraded its rating for Bread Financial from Underperform to In Line, also raising its price target to $45.00, acknowledging the company's promising medium-term Return on Tangible Common Equity (ROTCE) target. However, Goldman Sachs (NYSE:GS) maintained its Sell rating on Bread Financial, despite acknowledging better-than-expected delinquency and net charge-off performance.

In terms of earnings and revenue, Bread Financial reported an increased net loss rate for May 2024 at 8.8%, up from 8.4% in the previous year. The company also noted a slight increase in its delinquency rate from 5.5% to 5.9% year-over-year. Despite these figures, end-of-period receivables decreased slightly by 0.2% month-over-month to $17.85 billion.

In other company news, Bread Financial has secured a multi-year agreement with luxury retailer Saks Fifth Avenue to offer co-branded and private-label credit cards. The transition of Saks Fifth Avenue's credit card portfolio to Bread Financial is expected to be completed in the third quarter of 2024.

Additionally, Bread Financial has welcomed two new independent directors, Praniti Lakhwara and John J. Fawcett. These are the recent developments for Bread Financial.

InvestingPro Insights

Following Jefferies' updated assessment of Bread Financial Holdings, InvestingPro data and tips offer additional insights into the company's financial health and stock performance. With a market capitalization of $2.23 billion and a compelling price-to-earnings (P/E) ratio of 5.64, Bread Financial appears to be trading at a low earnings multiple, which may attract value investors. This is reinforced by the adjusted P/E ratio for the last twelve months as of Q1 2024, which sits at an even lower 5.34.

Despite a revenue decline of 5.14% over the last twelve months as of Q1 2024, Bread Financial has maintained dividend payments for nine consecutive years, offering a dividend yield of 1.87%. This commitment to returning value to shareholders could be a reassuring sign for income-focused investors. Additionally, the company's stock price has experienced a substantial increase, with a 38.42% price total return over the last six months and currently trading near its 52-week high, only 2.79% below the peak.

InvestingPro Tips highlight that while analysts have revised their earnings upwards for the upcoming period, and the company is expected to be profitable this year, Bread Financial suffers from weak gross profit margins and is anticipated to see a drop in net income. These mixed signals suggest that investors should consider both the potential risks and opportunities when evaluating the company. For those interested in a deeper analysis, InvestingPro offers additional tips on Bread Financial, which can be accessed with the promo code PRONEWS24 for up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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