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BFH Stock Trading at Discount to Industry at 6.94X: Time to Hold?
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Bread Financial Holdings, Inc. (BFH - Free Report) shares are trading at a discount to the Zacks Financial Transaction Services industry. Its forward price-to-earnings of 6.94X is lower than the industry average of 22.8X, the Finance sector’s 24.69X and the Zacks S&P 500 composite’s 21.71X. It has a Value Score of A.
The company has a market capitalization of $2.40 billion. The average volume of shares traded in the last three months was 1 million.
Image Source: Zacks Investment Research
The stock remains attractively valued compared with Visa Inc. (V - Free Report) and Global Payments Inc. (GPN - Free Report) but expensive when compared with The Western Union Company (WU - Free Report) .
An Outperformer
Bread Financial shares have surged 46.8% in the year-to-date period, outperforming the industry's growth of 9.4%. The Finance sector and the Zacks S&P 500 index have returned 15.9% and 20.7%, respectively, in the said time frame.
BFH Outperforms Industry, Sector & S&P 500 YTD
Image Source: Zacks Investment Research
BFH Trading Above 200-Day Moving Average
BFH closed at $48.34 on Friday and is trading above the 200-day simple moving average (SMA) of $41.75, indicating solid upward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.
Factors Acting in Favor of BFH
Bread Financial has a VGM Score of A. The VGM Score helps identify stocks with the most attractive value, best growth and the most promising momentum. This Financial Transaction Services stock’s earnings beat estimates in three of the trailing four quarters and missed once, delivering an average surprise of 84.37%. The long-term earnings growth is expected to be 39.2%, better than the industry average of 18.2%.
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 less than 115% at the end of second-quarter 2024 from 400% three years back. Bread Financial also intends to pay $100 million remaining in its 2026 bonds by 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.
Risks
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 compared with the first half.
Conclusion
Robust credit sales, higher retained earnings, active risk management, solid consumer spending and capital deployment should continue to favor BFH over the long term.
Image: Bigstock
BFH Stock Trading at Discount to Industry at 6.94X: Time to Hold?
Bread Financial Holdings, Inc. (BFH - Free Report) shares are trading at a discount to the Zacks Financial Transaction Services industry. Its forward price-to-earnings of 6.94X is lower than the industry average of 22.8X, the Finance sector’s 24.69X and the Zacks S&P 500 composite’s 21.71X. It has a Value Score of A.
The company has a market capitalization of $2.40 billion. The average volume of shares traded in the last three months was 1 million.
Image Source: Zacks Investment Research
The stock remains attractively valued compared with Visa Inc. (V - Free Report) and Global Payments Inc. (GPN - Free Report) but expensive when compared with The Western Union Company (WU - Free Report) .
An Outperformer
Bread Financial shares have surged 46.8% in the year-to-date period, outperforming the industry's growth of 9.4%. The Finance sector and the Zacks S&P 500 index have returned 15.9% and 20.7%, respectively, in the said time frame.
BFH Outperforms Industry, Sector & S&P 500 YTD
Image Source: Zacks Investment Research
BFH Trading Above 200-Day Moving Average
BFH closed at $48.34 on Friday and is trading above the 200-day simple moving average (SMA) of $41.75, indicating solid upward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.
Factors Acting in Favor of BFH
Bread Financial has a VGM Score of A. The VGM Score helps identify stocks with the most attractive value, best growth and the most promising momentum. This Financial Transaction Services stock’s earnings beat estimates in three of the trailing four quarters and missed once, delivering an average surprise of 84.37%. The long-term earnings growth is expected to be 39.2%, better than the industry average of 18.2%.
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 less than 115% at the end of second-quarter 2024 from 400% three years back. Bread Financial also intends to pay $100 million remaining in its 2026 bonds by 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.
Risks
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 compared with the first half.
Conclusion
Robust credit sales, higher retained earnings, active risk management, solid consumer spending and capital deployment should continue to favor BFH over the long term.
Bread Financial should continue to benefit from favorable valuation and its growth prospects. It is, therefore, wise to hold on to this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.