If you are wondering whether Bread Financial Holdings at US$86.60 still offers value after a strong run, this article will help you size up the stock before you commit fresh capital.
The stock has returned 0.8% over the last week, 0.5% over the last month, 15.0% year to date and 73.0% over the past year, with a 3 year return of 206.4% and a 5 year return that is down 2.3%.
Recent coverage around Bread Financial Holdings has focused on its position in consumer finance and how investors are reassessing the risk and reward trade off for credit focused stocks. Headlines have highlighted how sentiment around borrowing and spending trends is feeding directly into interest in Bread Financial Holdings.
Bread Financial Holdings currently scores a 5 out of 6 valuation check score. The sections that follow will break this down across different valuation methods, while also hinting at a more complete way to think about valuation that will be covered at the end.
The Excess Returns model looks at how much value a company can create over and above the return that shareholders require. Instead of focusing only on earnings today, it weighs the return generated on the equity invested in the business against the cost of that equity, then capitalizes the surplus.
For Bread Financial Holdings, book value is $80.51 per share, rising to a stable book value estimate of $97.16 per share, based on weighted future book value estimates from 5 analysts. Stable EPS is estimated at $13.22 per share, sourced from weighted future return on equity estimates from 8 analysts. The average return on equity is 13.60%, while the cost of equity is $9.64 per share, which implies an excess return of $3.58 per share.
Rolling these inputs together, the Excess Returns model points to an intrinsic value of about $153.23 per share. Compared with the current share price of $86.60, this implies the stock is 43.5% undervalued according to this approach.
Approach 2: Bread Financial Holdings Price vs Earnings
For a profitable company, the P/E ratio is a straightforward way to relate what you pay for the stock to the earnings it generates. Investors usually expect higher P/E ratios where earnings growth is stronger or more predictable, and lower P/E ratios where risks around those earnings are higher.
Bread Financial Holdings is trading on a P/E of 6.27x. This sits below both the Consumer Finance industry average P/E of 9.76x and the peer group average of 9.14x, which suggests the stock is priced more cautiously than many of its listed competitors.
Simply Wall St also calculates a proprietary “Fair Ratio” for the P/E, which for Bread Financial Holdings is 11.00x. This figure reflects factors such as the company’s earnings profile, industry, profit margin, market cap and risk characteristics. Because it is tailored to the company, this Fair Ratio can be more informative than a simple comparison with peer or industry averages, which treat all companies in the group as if they had similar prospects and risk.
Comparing the current P/E of 6.27x with the Fair Ratio of 11.00x suggests the stock is trading below this measure of value.
Upgrade Your Decision Making: Choose your Bread Financial Holdings Narrative
Earlier it was mentioned that there is an even better way to understand valuation. Narratives on Simply Wall St let you link your view of Bread Financial Holdings to a full forecast by telling a story about the business, tying that story to revenue, earnings and margin assumptions, and then comparing the Fair Value that comes from those numbers with today’s share price.
Within the Community page, you can pick or create a Narrative as a simple, accessible tool that responds when fresh news or earnings arrive, so your Fair Value view updates automatically rather than staying frozen in time.
For example, one Bread Financial Holdings Narrative sets Fair Value close to US$48.89 per share based on a cautious focus on tangible common equity, while another uses a more optimistic forecast and sits nearer US$115.00. By comparing where your chosen Fair Value sits in that range with the current price, you can decide whether the stock appears closer to fully priced or potentially mispriced for your own goals and risk tolerance.
For Bread Financial Holdings, here are previews of two leading Bread Financial Holdings Narratives:
Overvalued by about 73.2% versus the recent US$86.60 share price
Revenue growth assumption: 6.54% a year
Highlights that retained earnings are being reinvested at attractive rates, while current shareholder cash returns through dividends and buybacks are relatively modest.
Uses US$48.89 per share of tangible common equity as a reference point for downside protection, noting that provisions may weigh on how this is viewed by the market.
Points to regulatory uncertainty, late fee rules and credit losses as key watchpoints after a strong share price move earlier in the thesis.
If you want to move beyond previews and anchor your own view of Bread Financial Holdings to detailed assumptions about growth, profitability and risk, you can step through the full set of community and analyst Narratives, compare their Fair Values with today’s price, and decide which story best matches your objectives and risk tolerance. To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for Bread Financial Holdings on Simply Wall St. Add the company to your watchlist or portfolio so you’ll be alerted when the story evolves.
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.
