On Friday, BMO Capital Markets adjusted its outlook for Bread Financial Holdings (NYSE:BFH) shares, increasing the firm's price target from $31.00 to $33.00, while maintaining a Market Perform rating. The revision follows Bread Financial's report of credit and funding costs that did not meet expectations for the first quarter of 2024.
The analyst at BMO Capital cited the reason for the price target increase as a 4% raise in out-year estimates, attributing the adjustment to net revenues that were higher than previously anticipated.
Despite the initial shortfall, Bread Financial's revenue guidance for the fourth quarter of 2024 has shown improvement. The company now expects a 20% year-over-year decline, compared to the previously forecasted 25% drop, assuming the Consumer Financial Protection Bureau's (CFPB) late fee rule comes into effect in October.
Bread Financial has reported that its efforts to mitigate the impact of these challenges are becoming more effective. The company anticipates that while the near-term benefits of new fees, such as for statements, will contribute to its financial performance, the long-term advantages will come from a strategy of higher pricing, including the removal of soft caps on annual percentage rates (APRs).
The analyst's new target price of $33 is based on a valuation of 0.5 times the two-year-forward tangible common equity (TCE), which is derived from an 18% return on tangible common equity (RoTCE) and a price-to-earnings (P/E) target of 3 times. This revised target reflects a more optimistic view of Bread Financial's potential revenue growth and its strategic initiatives to enhance financial performance.
InvestingPro Insights
In light of the recent analysis by BMO Capital Markets, it's pertinent to consider additional insights from InvestingPro that could provide a more comprehensive view of Bread Financial Holdings (NYSE:BFH). With a notable uptick in stock price over the last six months, showing a 35.32% six-month price total return, the company's market performance has been robust. This aligns with the analyst's improved outlook and the company's strategic initiatives aimed at enhancing financial performance.
InvestingPro data indicates that Bread Financial's revenue growth has been impressive, with a 37.1% increase over the last twelve months as of Q4 2023, and an even more striking quarterly revenue growth rate of 56.6% for Q4 2023. This suggests that the company's revenue guidance for the fourth quarter of 2024 might be on a promising trajectory. Additionally, the company's operating income margin stands at a healthy 31.63%, reflecting efficient operations and profitability.
However, it's important to consider that the company is trading at a low earnings multiple, with an adjusted P/E ratio of 2.46 as of Q4 2023, which may indicate that the stock is undervalued. This could be an opportunity for investors looking for potentially undervalued stocks. Moreover, Bread Financial has maintained dividend payments for 9 consecutive years, with a dividend yield of 2.29%, which could appeal to income-focused investors.
For readers interested in further in-depth analysis, there are additional InvestingPro Tips available that discuss factors such as earnings revisions and gross profit margins. By utilizing the promo code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking more valuable insights to inform their investment decisions.
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