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On Tuesday, Compass Point initiated coverage on shares of Bread Financial Holdings (NYSE:BFH), assigning a Buy rating and setting a price target of $54.00. The firm's analysis suggests a 16% total return potential for the stock, including dividends, over the next twelve months.
The firm's forecast for Bread Financial's core earnings per share (EPS) for fiscal years 2024 and 2025 are $5.50 and $6.30 respectively, indicating a year-over-year core EPS decline of 46% for FY24, followed by a 15% increase for FY25. The target price is reflective of these anticipated earnings trends and the potential for share price growth.
Despite year-to-date re-rating of Bread Financial's shares and ongoing economic uncertainties, including a slowdown in consumer activity, Compass Point sees a favorable risk-reward balance. The firm's outlook is based on the company's credit management and its strategy to navigate new regulations on card late fees.
The analyst noted that Bread Financial's recent credit trend inflection is expected to continue, which, combined with anticipated growth in FY25, should lead to outperformance in its share price. Bread Financial's strength in the private label and co-brand sectors, along with its use of data analytics in credit analysis, are highlighted as key factors that will contribute to high risk-adjusted returns and support strong return on tangible common equity (ROTCE) and improving EPS trends moving forward.
The firm also pointed out that Bread Financial is disproportionately affected by the card late fee rule. Should this rule be eliminated or significantly changed, there could be a substantial upside to the EPS estimate for FY25, along with the possibility of multiple expansion due to reduced uncertainty.
In other recent news, Bread Financial's net loss rate increased to 8.8% in May 2024, up from 8.4% in the previous year. Delinquency rates also rose slightly from 5.5% to 5.9% year-over-year. Jefferies, RBC Capital, and Evercore ISI have all increased their price targets for Bread Financial shares, citing improved credit data, balance sheet strength, and a promising Return on Tangible Common Equity (ROTCE) outlook.
However, Goldman Sachs maintained its 'sell' rating, despite acknowledging better-than-expected delinquency and net charge-off performance.
In terms of corporate developments, Bread Financial has secured a multi-year agreement with Saks Fifth Avenue to offer co-branded and private-label credit cards, with the transition expected to be completed in the third quarter of 2024. Additionally, the company has welcomed two new independent directors, Praniti Lakhwara and John J. Fawcett.
InvestingPro Insights
As Bread Financial Holdings (NYSE:BFH) garners a fresh Buy rating from Compass Point, real-time data and insights from InvestingPro offer additional context for potential investors. With a current market capitalization of $2.44 billion and an attractive P/E ratio of 6.13, which further adjusts to 5.84 for the last twelve months as of Q1 2024, Bread Financial presents a compelling valuation proposition. The company's stock has seen significant momentum, with a price total return of 47.29% over the last three months, closely aligning with Compass Point's positive outlook.
InvestingPro Tips highlight that while analysts have revised their earnings upwards and anticipate profitability for the year, Bread Financial is experiencing a period of volatility, with a 52-week high price percentage of 99.57%. Additionally, the stock's RSI suggests it's in overbought territory, which could signal caution for short-term investors. Nevertheless, the company has demonstrated a commitment to returning value to shareholders, maintaining dividend payments for 9 consecutive years, with a current yield of 1.71%.
For those considering a deeper dive into Bread Financial's potential, InvestingPro offers additional tips and insights, with a total of 13 listed for BFH. To access these valuable insights and more, potential investors can use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. With a fair value estimate of $54.06 according to InvestingPro, Bread Financial's current and future financial health could be well-aligned with Compass Point's positive assessment and price target.
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