Bread Financial’s SWOT analysis: stock faces headwinds amid credit improvements

Bread Financial Holdings, Inc. (NYSE:BFH), a leading provider of financial services and payment solutions, has been navigating a challenging landscape characterized by intense competition and shifting consumer preferences. Recent analyst reports and credit data have shed light on the company’s performance and future prospects, revealing a mixed picture of improving credit metrics alongside persistent growth challenges. According to InvestingPro data, the company currently trades at a P/E ratio of 8.81 and appears undervalued based on comprehensive Fair Value analysis.

Want deeper insights? InvestingPro has identified several key tips for BFH, including its consistent dividend payments for 10 consecutive years and management’s aggressive share buyback program. Subscribers can access these and additional exclusive insights through our detailed Pro Research Report.

Financial Performance and Outlook

Bread Financial’s financial performance has shown signs of improvement, but analysts remain cautious about the company’s near-term growth prospects. The company reported a core earnings per share (EPS) of $0.41 for the fourth quarter of 2024, indicating seasonal growth and setting a positive tone for the outlook in 2025. The company maintains profitability with trailing twelve-month earnings of $5.67 per diluted share, while analysts forecast EPS of $7.40 for fiscal year 2025, according to InvestingPro data. However, revenue guidance for fiscal year 2025 has been weaker than anticipated, with expectations of low-single-digit growth when excluding late fee mitigants.

Analysts project EPS for fiscal year 2025 to be around $7.00, with estimates for fiscal year 2026 ranging from $8.85 to $9.59. These projections suggest potential for earnings growth, but also reflect the challenges Bread Financial faces in a competitive market.

Credit Quality Metrics

One of the bright spots in Bread Financial’s recent performance has been the improvement in credit quality metrics. Delinquency rates (DQs) and net charge-offs (NCOs) have shown positive trends in recent months. This improvement is reflected in the company’s strong InvestingPro Financial Health Score of "GOOD," with particularly robust scores in cash flow (3.28/5) and relative value (3.14/5). In May 2025, both metrics demonstrated year-over-year improvements, with DQs performing better than typical seasonality on a month-to-month basis.

Quarter-to-date NCOs were reported at 7.90% in June 2025, which compares favorably to second quarter estimates of 8.45% by Barclays and 8.34% by Street consensus. This improvement in credit performance could indicate better risk management and operational efficiency.

However, the company’s credit performance has been somewhat volatile. Earlier in the year, NCOs were anticipated to be slightly lower in the fourth quarter of 2024 due to hurricane-related relief measures, with expectations of higher NCOs in the second quarter of 2025. This variability underscores the importance of monitoring credit trends closely.

Competitive Landscape and Market Challenges

Bread Financial faces significant competitive pressures, particularly from the rapidly growing Buy Now, Pay Later (BNPL) sector. Analysts note that 85% of Bread Financial’s partners now offer an integrated BNPL option at checkout, with companies like Klarna and Afterpay aggressively targeting BFH’s lower-ticket, discretionary partner base.

This competitive landscape has contributed to challenges in loan growth. Loan balances have seen a slight year-over-year decrease of approximately 0.81% as of June 2025, though this represents an improvement from previous months’ declines. The shift towards co-branded cards is expected to exert pressure on net interest margin (NIM) due to lower annual percentage rates (APRs) and fee income.

Growth Outlook and Consumer Trends

Despite the challenges, there are some positive signs in consumer spending trends. Analysts have noted reacceleration in spending, particularly in apparel and travel & entertainment sectors. Fourth-quarter credit sales were up 1% year-over-year, and stronger-than-expected holiday spending led to ending receivables approximately $700 million above expectations.

Management’s 2025 guidance includes expectations of flat average receivables year-over-year, with slight growth in ending receivables if macroeconomic trends continue positively. However, the company remains cautious, maintaining tight credit boxes and anticipating uncertainty in the coming quarters due to various economic factors.

Capital Management and Strategic Initiatives

Bread Financial has demonstrated a commitment to prudent capital management. The company has improved its capital ratios and balance sheet conditions, allowing for increased flexibility in capital return strategies. Recent actions include the repurchase of $150 million in shares and a focus on investing in growth over significant repurchases. The company maintains a steady dividend yield of 1.66% and has generated substantial levered free cash flow of $1.8 billion over the last twelve months, according to InvestingPro data.

Looking for comprehensive analysis? Access our full Pro Research Report for BFH, featuring detailed financial metrics, peer comparisons, and expert insights that help you make informed investment decisions.

Management has also indicated a commitment to building up the CET1 ratio to 14%, balancing growth investments with capital returns to shareholders. This approach could provide a buffer against economic uncertainties while positioning the company for future opportunities.

Bear Case

How will increasing competition from BNPL providers impact Bread Financial’s market share?

The rise of BNPL providers poses a significant threat to Bread Financial’s market position. With 85% of BFH’s partners now offering integrated BNPL options at checkout, the company faces intense competition for consumer financing at the point of sale. This could lead to a loss of market share, particularly in the lower-ticket, discretionary purchase segment where BNPL offerings are most attractive.

The shift in consumer preferences towards BNPL solutions may result in reduced demand for traditional credit card products, potentially impacting Bread Financial’s loan growth and revenue generation. As competitors like Klarna and Afterpay continue to expand their presence, BFH may need to invest heavily in product innovation and marketing to maintain its competitive edge, which could pressure profitability in the near term.

What risks does the company face from potential changes to late fee regulations?

Potential changes to late fee regulations present a significant risk to Bread Financial’s revenue model. The company has already excluded late fee impacts from its 2025 guidance due to ongoing legal processes and uncertainty regarding the implementation of new rules. This regulatory uncertainty could have a material impact on BFH’s future revenues and profitability.

If stricter regulations on late fees are implemented, Bread Financial may need to adjust its pricing strategies and find alternative sources of revenue to compensate for the potential loss. This could involve increasing interest rates or introducing new fees, which might make their products less attractive to consumers and merchants alike. The uncertainty surrounding these regulatory changes also complicates long-term planning and could affect investor confidence in the company’s growth prospects.

Bull Case

How might improving credit quality metrics benefit Bread Financial’s financial performance?

The recent improvements in Bread Financial’s credit quality metrics, particularly the better-than-expected performance in delinquencies and net charge-offs, could significantly benefit the company’s financial performance. Lower delinquency rates and charge-offs typically translate to reduced credit losses, which directly impacts the bottom line.

Improved credit performance may allow Bread Financial to allocate less capital to loan loss reserves, potentially freeing up resources for growth initiatives or capital returns to shareholders. Additionally, better credit quality could lead to more favorable terms when securitizing receivables or accessing debt markets, potentially lowering the company’s cost of funding. This could enhance profitability and provide more flexibility in pricing products competitively against BNPL offerings.

What opportunities exist for Bread Financial to expand its merchant partnerships and product offerings?

Despite the competitive pressures, Bread Financial has opportunities to expand its merchant partnerships and diversify its product offerings. The company’s established relationships with top retailers, with contracts extended through at least 2028, provide a stable foundation for growth. BFH could leverage these partnerships to introduce innovative financing solutions that complement or compete with BNPL offerings.

There may be opportunities to expand into new verticals or target higher-value transactions where traditional credit products still hold advantages over BNPL. By focusing on segments where its expertise in underwriting and risk management provides a competitive edge, Bread Financial could differentiate itself from pure-play BNPL providers. Additionally, the trend towards co-branded cards, while presenting some challenges, also offers opportunities for deeper integration with merchant partners and enhanced customer loyalty programs.

SWOT Analysis

Strengths:

• Improving credit quality metrics (delinquencies and net charge-offs)
• Strong capital position with flexibility for growth investments and shareholder returns
• Established partnerships with major retailers

Weaknesses:

• Declining loan balances year-over-year
• Pressure on net interest margin due to shift towards co-branded cards
• Vulnerability to competition in lower-ticket, discretionary purchase segment

Opportunities:

• Potential for stronger growth in late 2025 as economic conditions stabilize
• Expansion of co-branded partnerships and innovative financing solutions
• Leveraging improved credit performance for more competitive product offerings

Threats:

• Intense competition from BNPL providers
• Regulatory changes, particularly regarding late fees
• Economic uncertainties affecting consumer spending and credit quality

Analysts Targets

• Barclays: $45.00 (June 12th, 2025)
• JMP Securities: Market Perform (no price target) (May 21st, 2025)
• Barclays: $45.00 (May 14th, 2025)
• JMP Securities: Market Perform (no price target) (April 28th, 2025)
• Barclays: $53.00 (March 18th, 2025)
• Barclays: $53.00 (February 12th, 2025)
• JMP Securities: Market Perform (no price target) (February 3rd, 2025)
• RBC Capital Markets: $68.00 (January 31st, 2025)
• Barclays: $53.00 (January 31st, 2025)

This analysis is based on information available up to June 14, 2025, and reflects the complex landscape Bread Financial navigates as it seeks to balance growth, credit quality, and competitive pressures in the evolving financial services sector.

InvestingPro: Smarter Decisions, Better Returns

Gain an edge in your investment decisions with InvestingPro’s in-depth analysis and exclusive insights on BFH. Our Pro platform offers fair value estimates, performance predictions, and risk assessments, along with additional tips and expert analysis. Explore BFH’s full potential at InvestingPro.

Should you invest in BFH right now? Consider this first:

Investing.com’s ProPicks, an AI-driven service trusted by over 130,000 paying members globally, provides easy-to-follow model portfolios designed for wealth accumulation. Curious if BFH is one of these AI-selected gems? Check out our ProPicks platform to find out and take your investment strategy to the next level.

To evaluate BFH further, use InvestingPro’s Fair Value tool for a comprehensive valuation based on various factors. You can also see if BFH appears on our undervalued or overvalued stock lists.

These tools provide a clearer picture of investment opportunities, enabling more informed decisions about where to allocate your funds.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.