On Wednesday, Goldman Sachs (NYSE:GS) reiterated its Sell rating on Bread Financial Holdings (NYSE:BFH), maintaining a $40.00 price target. The firm's analysis highlighted that Bread Financial reported strong May results, with delinquencies and net charge-offs (NCOs) performing better than expected, though loan growth showed a continued slowdown.
Delinquency rates decreased approximately 9 basis points month-over-month to 5.9%, which is an improvement over the anticipated seasonal increase. Year-over-year, delinquencies rose by 40 basis points, which is less than the 50 basis point increase observed in April. NCOs saw a month-over-month increase of about 19 basis points to roughly 8.8%, which is still below the company's expectations and better than the seasonal forecast of a 2 basis point decrease.
End-of-period receivables slightly declined by 0.2% month-over-month to $17.85 billion, falling short of the long-term seasonal growth expectation. On a year-over-year basis, this represented a 1.3% decrease. Average receivables also dropped by 0.9% month-over-month, diverging from the expected seasonal increase.
The report further indicated that with May losses at approximately 8.8%, NCOs might be peaking lower than Bread Financial's April prediction of second quarter losses around 9%. This is also below the street's estimate of second quarter NCOs at roughly 8.94%. Delinquencies have shown improvement for four consecutive months, suggesting a positive outlook for NCO recovery in the second half of 2024 into 2025.
Goldman Sachs concluded that given the better-than-expected performance in delinquencies and the lower-than-anticipated NCO peak, Bread Financial's stock could open strong.
In other recent news, Bread Financial has reported an increased net loss rate for May 2024, standing at 8.8%, up from 8.4% in May 2023. The company also noted a slight increase in its delinquency rate, which measures overdue loan payments, from 5.5% to 5.9% year-over-year. However, the end-of-period credit card and other loans saw a slight decrease from $18,078 million to $17,847 million. The company attributes these changes to the transition of credit card processing services completed in June 2022.
In addition to financial performance, 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 existing credit card portfolio to Bread Financial is expected to be completed in the third quarter of 2024.
The company has also expanded its board with the appointment of two new independent directors, Praniti Lakhwara and John J. Fawcett. Lakhwara, current CIO at Zscaler (NASDAQ:ZS), brings over two decades of experience in scaling global IT operations, while Fawcett, a veteran in the financial services sector, brings extensive experience in accounting, international operations, and business operations.
On the analyst front, Barclays (LON:BARC) Capital Inc. issued an "Underweight" rating, while Wolfe Research and Keefe, Bruyette & Woods upgraded Bread Financial to "Outperform". However, Argus downgraded the company's shares from Buy to Hold due to a challenging revenue environment. These are the recent developments in Bread Financial.
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