On Thursday, Bread Financial Holdings (NYSE:BFH) stock received an upgraded rating from Evercore ISI, moving from Underperform to In Line. Accompanying this upgrade, the firm also raised the price target for the company's shares to $45.00, previously set at $42.00.
The upgrade follows Bread Financial's Investor Day, where the company outlined a promising medium-term Return on Tangible Common Equity (ROTCE) target in the low-to-mid 20% range for the next two to three years. This target aligns with the positive reception from investors and stands in favorable comparison to both Evercore and broader market expectations.
The analyst's decision to raise the stock's status was influenced by several factors. A key element is the anticipated strengthening of Bread Financial's ROTCE trajectory. Additionally, there is now improved clarity regarding the potential impacts of the Consumer Financial Protection Bureau's (CFPB) late fee rule on the company. Bread Financial's management has also maintained credit expectations that are likely to support the company's valuation in the face of possible headwinds.
In their commentary, Evercore ISI highlighted that the updated ROTCE outlook already takes into account the effects of the CFPB late fee rule and the company's strategies to mitigate it. This proactive incorporation of regulatory changes into the company's financial planning has contributed to the more favorable view from analysts.
Bread Financial Holdings, with its revised rating and price target, is now positioned in line with Evercore ISI's current expectations. The firm's analysis suggests that the potential for additional downside to Bread Financial's valuation is limited, given the company's strategic planning and financial targets.
In other recent news, Bread Financial has reported a higher net loss rate for May at 8.8%, up from 8.4% in the previous year. The delinquency rate also saw a slight increase year-over-year from 5.5% to 5.9%.
Despite these figures, Goldman Sachs (NYSE:GS) maintains its 'sell' rating on the company, highlighting better-than-expected performance in delinquencies and lower-than-anticipated net charge-offs. Meanwhile, end-of-period receivables decreased slightly by 0.2% month-over-month to $17.85 billion.
In terms of corporate developments, 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.
On the board front, Bread Financial has welcomed two new independent directors, Praniti Lakhwara and John J. Fawcett. Barclays (LON:BARC) Capital Inc. issued an "Underweight" rating, Wolfe Research and Keefe, Bruyette & Woods upgraded the company to "Outperform", while Argus downgraded Bread Financial's shares from Buy to Hold. These are the recent developments for Bread Financial.
InvestingPro Insights
Following the recent upgrade by Evercore ISI, Bread Financial Holdings (NYSE:BFH) seems poised for attention from investors seeking value. With a P/E ratio of just 4.88 and an adjusted P/E ratio for the last twelve months as of Q1 2024 at 4.86, Bread Financial is trading at a low earnings multiple, which could indicate a potentially undervalued stock. Moreover, the company has a track record of consistent dividend payments, having maintained them for 9 consecutive years, with a dividend yield of 2.06% as of the last dividend ex-date on May 9, 2024.
While the company's revenue has seen a decline of 5.14% over the last twelve months as of Q1 2024, Bread Financial has experienced a significant price uptick of 26.98% over the past six months. This surge is reflected in the year-to-date price total return of 25.4%, suggesting a strong market confidence that aligns with the positive outlook presented during their Investor Day.
InvestingPro Tips highlight that, despite weak gross profit margins, analysts predict Bread Financial will be profitable this year and has been profitable over the last twelve months. For investors seeking comprehensive analysis and additional insights, InvestingPro offers more tips on Bread Financial, which can be accessed with the promo code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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