- If you are wondering whether Bread Financial Holdings is attractively priced right now, the recent share performance and valuation checks give you quite a bit to consider.
- The stock closed at US$71.53, with a 0.9% decline over the past 7 days and a 5.9% decline over the last 30 days, while the return over the past year sits at 47.4% and the 3 year return is 158.0% against a 15.0% decline over 5 years.
- These mixed returns over different time frames suggest that investor expectations and risk views on Bread Financial have shifted over time. It can therefore be useful to step back from short term moves and look at whether the current price aligns with underlying value using several valuation methods.
- On Simply Wall St's valuation checks, Bread Financial scores a 5 out of 6 for being potentially undervalued. Next we will compare what different valuation approaches indicate about the stock, then finish with one more tool that can help you put those valuation signals into context.
Approach 1: Bread Financial Holdings Excess Returns Analysis
The Excess Returns model looks at how much profit a company is expected to earn above the return that shareholders require, then converts those extra profits into an estimated value per share.
For Bread Financial Holdings, the model uses a book value of $75.44 per share and a stable earnings per share of $12.05, based on weighted future Return on Equity estimates from 8 analysts. The average Return on Equity used in the model is 12.78%, while the cost of equity is $10.16 per share, implying an excess return of $1.89 per share. The stable book value that the model works towards is $94.30 per share, based on weighted future book value estimates from 5 analysts.
Combining these inputs, the Excess Returns valuation points to an intrinsic value of about $120.02 per share. Compared with the recent share price of $71.53, this suggests the stock is 40.4% undervalued under this framework.
Result: UNDERVALUED
Our Excess Returns analysis suggests Bread Financial Holdings is undervalued by 40.4%. Track this in your watchlist or portfolio, or discover 48 more high quality undervalued stocks.
Approach 2: Bread Financial Holdings Price vs Earnings
For a profitable company, the P/E ratio is a useful way to see how much you are paying for each dollar of earnings, because it connects the share price directly to the business’s current profit stream.
What counts as a normal P/E depends a lot on what investors expect for future growth and how much risk they see. Higher expected growth or lower perceived risk can support a higher P/E, while lower growth or higher risk usually points to a lower P/E being reasonable.
Bread Financial Holdings currently trades on a P/E of 5.92x. That sits below the Consumer Finance industry average of 7.79x and well below the peer group average of 18.44x. Simply Wall St’s Fair Ratio for Bread Financial is 12.71x. This Fair Ratio is a proprietary estimate of what P/E might be appropriate after factoring in elements such as earnings growth, profit margins, industry, market cap and specific risks.
Because the Fair Ratio adjusts for these company specific drivers, it can be more informative than a simple comparison with industry or peers alone. With a Fair Ratio of 12.71x versus the current 5.92x, the P/E based view points to the shares trading below that Fair Ratio.
Result: UNDERVALUED
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Upgrade Your Decision Making: Choose your Bread Financial Holdings Narrative
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce Narratives. These are simple story based forecasts where you connect your view of Bread Financial Holdings to explicit assumptions for future revenue, earnings, margins and a fair value. You can then compare that fair value to the current price on Simply Wall St’s Community page, see how it lines up with other Narratives ranging from a cautious US$50.00 or US$51.0 fair value to a more optimistic US$93.79, and watch those views update automatically as new news or earnings arrive.
For Bread Financial Holdings, here are previews of two leading Bread Financial Holdings Narratives:
🐂 Bread Financial Holdings Bull Case
Fair value in this narrative: US$83.13 per share
Implied pricing: about 13.9% below this fair value based on the recent US$71.53 share price
Revenue growth used in this view: 17.36% a year
- Analysts in this narrative see technology upgrades, AI tools and digital products as key drivers for efficiency, credit assessment and more tailored lending offers, which feeds into their earnings and margin assumptions.
- They also factor in deeper co brand and private label partnerships and embedded finance offerings across e commerce and cashless payments, which they link to recurring revenue and customer engagement.
- The fair value and price target work on assumptions for revenue growth, profit margins, a future P/E of 8.66x and a 10.52% discount rate. The consensus view in this narrative is that the current share price sits close to those targets, so they see the stock as roughly fairly priced against their model.
🐻 Bread Financial Holdings Bear Case
Fair value in this narrative: US$50.00 per share
Implied pricing: about 43.1% above this fair value based on the recent US$71.53 share price
Revenue growth used in this view: 6.54% a year
- This narrative starts from the view that Bread Financial is a profitable bank reinvesting retained earnings at attractive rates, but that regulatory questions around its model and late fee rules add meaningful uncertainty.
- The author highlights that the share price had already moved well past their US$50.00 fair value ceiling, so they focus on risks around credit losses and how the business adjusts to new late fee regulation as key areas to watch.
- They also point to tangible common equity of US$48.89 per share as a form of downside reference point, while arguing that after a strong share price run, the balance of reward versus these risks looks less favourable in their view.
If you want to see how these viewpoints are built and where you might agree or disagree, it can be helpful to read the full narratives, compare the assumptions to your own and decide which story feels closer to how you see Bread Financial today and over the next few years.
Do you think there's more to the story for Bread Financial Holdings? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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