BFH Stock Trading at Discount to Industry at 6.94X: Time to Hold?

Core Viewpoint - Bread Financial Holdings, Inc. (BFH) is trading at a significant discount compared to its industry peers, indicating potential investment opportunities due to its attractive valuation metrics [1]. Valuation Metrics - BFH's forward price-to-earnings ratio is 6.94X, which is lower than the industry average of 22.8X, the Finance sector's 24.69X, and the Zacks S&P 500 composite's 21.71X [1]. - The company has a market capitalization of $2.40 billion and an average trading volume of 1 million shares over the last three months [1]. Performance Comparison - BFH shares have increased by 46.8% year-to-date, outperforming the industry's growth of 9.4%, while the Finance sector and the Zacks S&P 500 index have returned 15.9% and 20.7%, respectively [2]. - The stock closed at $48.34, trading above its 200-day simple moving average of $41.75, indicating strong upward momentum [3]. Growth Potential - BFH has a VGM Score of A, indicating attractive value, growth, and momentum characteristics [4]. - The company has beaten earnings estimates in three of the last four quarters, with an average surprise of 84.37%, and is expected to achieve long-term earnings growth of 39.2%, surpassing the industry average of 18.2% [4]. Credit Sales and Consumer Behavior - Credit sales performance is anticipated to improve due to solid consumer spending, with expectations of increased average loans and strong credit sales driven by new partnerships and holiday spending [5]. - Credit metrics are expected to remain strong, with delinquency and net loss rates projected to stay below historical averages due to disciplined risk management and positive consumer payment behavior [5]. Strategic Investments - The company is investing in strategic growth areas, enhancing marketing spending in growth verticals, and prioritizing digital innovation and technology improvements [6]. - BFH has established strategic relationships with partners like RBC, Fiserv, and Sezzle to leverage its versatile mono platform [6]. Financial Health - The company has been strengthening its balance sheet and reducing debt, with leverage improving to less than 115% from 400% three years ago [7]. - BFH plans to pay off the remaining $100 million in its 2026 bonds this year to further enhance its leverage position [7]. Shareholder Value - The company is focused on returning value to shareholders through share repurchases and plans to increase its focus on buybacks and mergers and acquisitions [8]. Conclusion - Robust credit sales, higher retained earnings, active risk management, solid consumer spending, and effective capital deployment are expected to favor BFH in the long term [10]. - The company is positioned to benefit from favorable valuation and growth prospects, making it a stock worth holding [10].