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On Monday, Morgan Stanley (NYSE:MS) adjusted its stance on Bread Financial Holdings (NYSE:BFH), downgrading the stock from Overweight to Underweight and significantly reducing the price target from $76.00 to $33.00. The financial firm expressed concerns about the company’s vulnerability to a potential recession, noting Bread Financial’s substantial exposure due to its customer base composition. According to InvestingPro data, the stock currently trades at a P/E ratio of 7.36x and has seen a sharp 31% decline year-to-date, though analysis suggests the stock may be undervalued at current levels.
Bread Financial, known for its private-label and co-branded credit cards, has been acknowledged by Morgan Stanley for its efforts to improve its balance sheet and diversify its credit portfolio. Despite these efforts, the firm highlighted that 42% of Bread Financial’s loans are still nonprime, which could subject the company to increased risk if low-income consumers face financial strains. InvestingPro analysis shows the company maintains a "GOOD" overall Financial Health Score of 2.51, with particularly strong marks in cash flow and relative value metrics.
The analysis by Morgan Stanley pointed to a deceleration in loan growth, attributing it to a reduction in retail spending, particularly on high-cost items over the past year. Bread Financial’s cautious approach to acquiring new accounts in an uncertain economic climate was also mentioned, though the firm suggests that the strategy may now be showing its limitations. This aligns with recent InvestingPro data showing four analysts revising their earnings expectations downward for the upcoming period. For deeper insights into BFH’s financial health and growth prospects, investors can access the comprehensive Pro Research Report, which provides detailed analysis of key metrics and growth drivers.
Morgan Stanley’s revised earnings per share (EPS) estimate for 2026 reflects a significant 34% drop from previous expectations, placing it roughly 30% below the consensus. The firm anticipates a modest uptick in loan losses into 2026, with net charge-offs (NCOs) expected to rise from approximately 8.2% in 2025 to 8.4% in 2026. Despite these concerns, InvestingPro data shows the company has maintained dividend payments for 10 consecutive years, with a current yield of 2.01%.
The new price target of $33.00 is based on a 5x price-to-earnings (P/E) ratio on the estimated 2026 earnings per share, indicating a 21% downside compared to the median name in the firm’s coverage universe, which is projected to have a 6% upside. This adjustment reflects Morgan Stanley’s revised outlook on Bread Financial’s performance amidst a challenging economic landscape. For comprehensive analysis of BFH’s valuation metrics and future growth potential, investors can access detailed financial models and expert insights through InvestingPro.
In other recent news, Bread Financial Holdings, Inc. reported a decrease in its net loss and delinquency rates for the month ending February 28, 2025. The net loss rate improved slightly to 8.6% from 8.9% the previous year, while the delinquency rate dropped to 6.2% from 6.7%. Additionally, the company noted a year-over-year decrease in average credit card and other loans by 2%, with net principal losses reported at $120 million, down from $131 million. Bread Financial also closed its offering of $400 million in subordinated notes, which are set to mature in 2035, with interest payments scheduled semiannually. This financial move follows a previous credit agreement involving major financial institutions, showcasing the company’s active capital management strategy. Furthermore, Bread Financial announced a new share repurchase program, allowing for the buyback of up to $150 million of its common stock. The repurchase plan is part of a broader effort to strengthen the company’s balance sheet and optimize its capital structure. These developments indicate Bread Financial’s ongoing adjustments to its financial strategies amid broader economic challenges.
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