First Read: PPNR Upside and Raised Outlook Outweigh NIM Pressure

Research evidence excerpt

First Read: PPNR Upside and Raised Outlook Outweigh NIM Pressure

Forecast returns

Forecast price appreciation 17.8%

Forecast dividend yield 0.9%

Forecast stock return 18.7%

Market return assumption 9.3%

Forecast excess return 9.4%

Company Description

Bread Financial (formerly Alliance Data) is a ~$20bn asset financial services company

headquartered in Columbus, OH, primarily focused on providing private label/co-brand credit

card, installment loan, split pay, and savings products to consumers across the US. The

company has operated its single business segment since its 2021 spin-off of Loyalty Ventures.

Bread partners with a diverse range of established brands and SMBs to provide consumer

credit services spanning a broad range of verticals including retail, travel, health and beauty,

sporting goods, technology & electronics, home goods, and specialty apparel.

Valuation Method and Risk Statement

Our price target is derived by applying a target P/E multiple on our 2027 EPS estimate

(weighted 50%) and a target P/TBVPS multiple on our 2026 TBVPS estimate (weighted 50%).

Our target P/E multiple is informed by the company's historical P/E multiple, its historical

multiple vs. peers, and market multiples for the banking industry. Our target P/TBV multiple is

informed by the company's historical P/TBV multiple, its historical multiple vs. peers, and a

regression of industry ROTCE vs. P/TBV multipes. Downside risks include: 1) lower deposit

levels resulting from decreased liquidity levels in the financial system; 2) credit deterioration

and reduced industry-wide loan demand resulting from a potential recession; 3) net interest

margin pressure from additional rate cuts, and 4) lower profitability and capital returns

resulting from a more rigorous regulatory environment.