Here's Why Investors Should Hold Bread Financial (BFH) Now

Zacks Equity Research
·4-min read

Bread Financial Holdings, Inc. BFH has been favored by investors on the back of its higher retained earnings, active risk management, solid consumer spending and capital deployment.

Zacks Rank & Price Performance

Bread Financial currently carries a Zacks Rank #3 (Hold). Year to date, the stock has gained 35.3% compared with the industry’s growth of 0.7%. Strong fundamentals of BFH are likely to help the stock retain its momentum.

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Earnings Surprise History

BFH surpassed earnings estimates in three of the last four quarters and missed in one, the average being 180.85%.

Northbound Estimate Revision

The Zacks Consensus Estimate for 2024 and 2025 earnings has moved 0.8% and 0.1% north, respectively, in the past 30 days, reflecting analysts’ optimism.

Style Score

Bread Financial has a favorable VGM Score of A. The VGM Score helps identify stocks with the most attractive value, best growth and most promising momentum.

Business Tailwinds

The credit sales performance is expected to improve on the back of solid consumer spending. With the continued growth of credit sales, average loans are likely to increase. With new partner additions and holiday spending, BFH continues to expect strong credit sales.

Credit metrics should remain strong with delinquency and net loss rates remaining below the historical averages. Given disciplined, proactive risk management and strong consumer payment behavior, net loss rates are expected to remain low.

BFH is prudently investing in strategic growth areas and ramping up marketing spending in growth verticals and digital innovation and technology enhancements. Bread Financial stated that ramping up its digital and technology capabilities remains a top priority this year. It has strategic relationships leveraging BFH’s versatile mono platform, including RBC, Fiserv and Sezzle.

The company has been strengthening its balance sheet and lowering debt. Notably, its free cash flow conversion has been impressive over the last several quarters, reflecting its solid earnings. Leverage improved to 118% at the end of the first quarter of 2024. Bread Financial also intends to pay $100 million remaining in its 2026 bonds by the end of this year to further improve leverage.

BFH remains focused on returning value to its shareholders. It uses share repurchases as a tool to mitigate the adverse impact of foreign exchange and intends to focus more on share buybacks and mergers and acquisitions.

The expected long-term earnings growth rate is 39.2%, outperforming the industry average of 18.4%.

However, Bread Financial has been witnessing a rise in non-interest expenses for the past few years. The company expects the net loss rate to be in the low 8% range for 2024, increasing in the second quarter at around 9% as inflation continues to pressure consumers’ ability to pay and moderate their spending. Nonetheless, the company expects a lower loss rate in the second half of 2024 versus the first half.

Stocks to Consider

Some better-ranked stocks from the finance sector are World Acceptance Corporation WRLD, WSFS Financial Corporation WSFS and The Western Union Company WU, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

World Acceptance has a solid track record of beating earnings estimates in each of the trailing four quarters, the average being 61.72%. Year to date, shares of WRLD have lost 5.3%.

The Zacks Consensus Estimate for WRLD’s 2025 earnings and revenues implies year-over-year growth of 3.7% and 1.2%, respectively.

WSFS Financial has a solid track record of beating earnings estimates in each of the trailing four quarters, the average being 7.93%. Year to date, shares of WSFS have gained 2.4%.

The Zacks Consensus Estimate for WSFS’ 2025 earnings and revenues implies year-over-year growth of 2.8% and 3.7%, respectively.

The Western Union has a solid track record of beating earnings estimates in each of the trailing four quarters, the average being 15.66%. Year to date, shares of WU have gained 2.6%.  

The Zacks Consensus Estimate for WU’s 2024 and 2025 earnings implies year-over-year growth of 1.1% and 5.3%, respectively.

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