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Summary of Equity Research on Bread Financial Holdings, Inc. (BFH)

June 11, 2025

Executive Summary

This report analyzes Bread Financial Holdings, Inc. (BFH), a credit card issuer, with an equity rating of Hold and a price target of $55.00, representing a +5% upside from the current trading price of $52.27. Key findings indicate mixed credit trends, with delinquencies (DQs) showing improvement but net charge-offs (NCOs) remaining elevated. The analysis highlights the need for NCO reduction to revert to historical credit levels, while loan contraction continues but underperforms historical and seasonal expectations. Risks include economic downturns, regulatory changes in US and Europe, competitive pressures, and potential valuation overhang.

Company Overview

Bread Financial Holdings, Inc. focuses on credit card issuance, including private label and co-branded cards, and BNPL products. The company operates primarily in the US, Canada, and Europe, providing financial services with a main emphasis on consumer lending.

Financial Highlights

• Delinquencies (DQs): May DQs at 5.70% (up +14 bps M/M vs seasonal avg, but YoY decline of -20 bps). Still negative YoY compared to prior month, yet better than forecasts.
• Net Charge-offs (NCOs): May NCOs at 8.00% (YoY decline of -80 bps), flat M/M with prior month. Historically below average, but NCOs must improve significantly. Factors include hurricane adjustment reversals (+30 bps impact), with guidance for higher Q/Q NCOs.
• Loan Portfolio: Total loans of $17.7B in May, down -0.8% YoY. Growth fell short of seasonal expectations (+1.68% bps M/M), and the company expects stable to declining loans YoY.
• Trends and Outlook: Credit metrics show slight improvement, but NCOs need to decline to align with pre-pandemic averages. Seasonal data suggests lower NCO rates in upcoming quarters, better than the 2Q guide. Below-average YoY loan growth underscores vulnerability to consumer spending shifts.

Opinions and Risks

• Opportunities: Potential for improved credit quality if NCOs decline, supported by analyst models.
• Risks: Economic downturns in the US or Europe could reduce consumer spending; increased regulations or heightened competition, including BNPL providers, may pressure margins; valuation risks due to potential multiple contraction if guidance is missed. Higher NCOs Q/Q could strain operating margins.

Investment Rating

• Rating: Hold (expected total return of +15% or -10% over 12 months)
• Price Target: $55.00 (up 5% from current price)
• Analyst Certification: John Hecht, Alexander Villalobos, Ibrahim Kargbo affirm views are their own and not tied to compensation.