Bread Financial (BFH)
Bread Financial keeps us up at night. Its revenue and earnings have underwhelmed, suggesting weak business fundamentals.― StockStory Analyst Team
1. News
2. Summary
Why We Think Bread Financial Will Underperform
Formerly known as Alliance Data Systems until its 2022 rebranding, Bread Financial (NYSE:BFH) provides credit cards, installment loans, and savings products to consumers while powering branded payment solutions for retailers and merchants.
- Annual sales declines of 6.1% for the past two years show its products and services struggled to connect with the market during this cycle
- Earnings per share have contracted by 3% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- A silver lining is that its market-beating return on equity illustrates that management has a knack for investing in profitable ventures
Bread Financial’s quality isn’t up to par. There are more promising alternatives.
Why There Are Better Opportunities Than Bread Financial
Bread Financial is trading at $72.00 per share, or 8.1x forward P/E. Bread Financial’s valuation may seem like a bargain, but we think there are valid reasons why it’s so cheap.
We’d rather pay up for companies with elite fundamentals than get a bargain on weak ones. Cheap stocks can be value traps, and as their performance deteriorates, they will stay cheap or get even cheaper.
3. Bread Financial (BFH) Research Report: Q3 CY2025 Update
Financial services company Bread Financial (NYSE:BFH) met Wall Street’s revenue expectations in Q3 CY2025, but sales fell by 1.2% year on year to $971 million. Its non-GAAP profit of $4.02 per share was 90.3% above analysts’ consensus estimates.
Bread Financial (BFH) Q3 CY2025 Highlights:
- Net Interest Margin: 18.8% vs analyst estimates of 18.6% (20.2 basis point beat)
- Revenue: $971 million vs analyst estimates of $966.5 million (1.2% year-on-year decline, in line)
- Efficiency Ratio: 49% vs analyst estimates of 49.8% (77.2 basis point beat)
- Adjusted EPS: $4.02 vs analyst estimates of $2.11 (90.3% beat)
- Market Capitalization: $2.82 billion
Company Overview
Formerly known as Alliance Data Systems until its 2022 rebranding, Bread Financial (NYSE:BFH) provides credit cards, installment loans, and savings products to consumers while powering branded payment solutions for retailers and merchants.
Bread Financial operates through two main business segments: its traditional credit card business and its newer digital payment solutions. The company's core business involves partnering with approximately 100 brands to offer private label and co-brand credit cards. These partnerships span diverse retail sectors including travel, entertainment, health, beauty, jewelry, and specialty apparel, with clients such as Victoria's Secret, Ulta Beauty, and Saks Fifth Avenue.
For retailers, Bread Financial manages the entire credit lifecycle—from application processing and underwriting to customer service and collections. These branded credit programs help merchants increase sales and customer loyalty while providing valuable consumer data and analytics. The typical partnership agreements run 5-10 years, creating stable, long-term revenue streams.
Beyond traditional credit cards, the company has expanded into digital payment solutions through its Bread Pay platform, which offers installment loans and split-pay options. The installment loans allow consumers to finance purchases with fixed monthly payments over 3-48 months, while the split-pay option divides purchases into four interest-free payments over six weeks. These products appeal particularly to younger consumers who prefer alternatives to traditional credit.
Bread Financial also operates a direct-to-consumer business with its own branded credit cards on the American Express network and Bread Savings, which offers high-yield savings accounts and certificates of deposit. The company generates revenue primarily through interest and fees on its loan products, as well as from merchant discount fees that compensate for promotional financing offers.
4. Credit Card
Credit card companies facilitate electronic payments and extend revolving credit to consumers. Growth comes from increasing digital payment adoption, cross-border transaction growth, and value-added services for cardholders and merchants. Challenges include regulatory scrutiny of fees and practices, competition from alternative payment methods, and potential credit losses during economic downturns.
Bread Financial competes with traditional credit card issuers like Synchrony Financial (NYSE:SYF) and Capital One (NYSE:COF), as well as with buy-now-pay-later providers such as Affirm (NASDAQ:AFRM), Klarna, and Block's Afterpay (NYSE:SQ). In the digital banking space, it faces competition from online banks like Ally Financial (NYSE:ALLY) and numerous fintech startups.
5. Revenue Growth
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Bread Financial’s 2.6% annualized revenue growth over the last five years was sluggish. This was below our standards and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within financials, a half-decade historical view may miss recent interest rate changes, market returns, and industry trends. Bread Financial’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 6.1% annually. 
Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.
This quarter, Bread Financial reported a rather uninspiring 1.2% year-on-year revenue decline to $971 million of revenue, in line with Wall Street’s estimates.
6. Net Interest Margin
Net interest margin (NIM) represents how much a financial institution earns in relation to its outstanding loans. It's one of the most important metrics to track because it shows how a bank's loans are performing and whether it has the ability to command higher premiums for its services.
Bread Financial’s net interest margin has increased by 23.3 basis points (100 basis points = 1 percentage point) over the last four years but decreased by 123.3 basis points on a two-year basis. These rates of change were worse than the broader financials industry. The firm’s NIM for the trailing 12 months was 18.2%.
7. Efficiency Ratio
Topline growth carries importance, but the overall profitability behind this expansion determines true value creation. For Credit Card companies, the efficiency ratio captures this relationship by measuring non-interest expenses, including salaries, facilities, technology, and marketing, against total revenue.
Markets emphasize efficiency ratio trends over static measurements, recognizing that revenue compositions drive different expense bases. Lower efficiency ratios signal superior performance by indicating that lenders are controlling costs effectively relative to their income.
Over the last four years, Bread Financial’s efficiency ratio has swelled by 2.5 percentage points, going from 52.1% to 49.5%. However, fixed cost leverage was muted more recently as the company’s efficiency ratio was flat on a two-year basis.
In Q3, Bread Financial’s efficiency ratio was 49%, beating analysts’ expectations by 77.2 basis points (100 basis points = 1 percentage point). This result was 9.4 percentage points better than the same quarter last year.
8. Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Bread Financial’s flat EPS over the last five years was below its 2.6% annualized revenue growth. However, its efficiency ratio actually improved during this time, telling us that non-fundamental factors such as interest expenses and taxes affected its ultimate earnings.
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.
Although it wasn’t great, Bread Financial’s two-year annual EPS declines of 3% topped its two-year revenue losses.
In Q3, Bread Financial reported adjusted EPS of $4.02, up from $1.84 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Bread Financial’s full-year EPS of $10.47 to shrink by 19.5%.
9. Return on Equity
Return on equity, or ROE, quantifies bank profitability relative to shareholder equity - an essential capital source for these institutions. Over extended periods, superior ROE performance drives faster shareholder wealth compounding through reinvestment, share repurchases, and dividend growth.
Over the last five years, Bread Financial has averaged an ROE of 22.7%, exceptional for a company operating in a sector where the average shakes out around 10% and those putting up 25%+ are greatly admired. This is a bright spot for Bread Financial.
10. Balance Sheet Assessment
Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.
Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.
This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.
New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.
Over the last two years, Bread Financial has averaged a Tier 1 capital ratio of 12.2%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.
11. Key Takeaways from Bread Financial’s Q3 Results
It was good to see Bread Financial beat analysts’ EPS expectations this quarter. We were also excited its net interest margin outperformed Wall Street’s estimates by a wide margin. On the other hand, its efficiency ratio missed. Zooming out, we think this was a solid print. The stock remained flat at $60.67 immediately after reporting.
12. Is Now The Time To Buy Bread Financial?
Updated: December 4, 2025 at 11:13 PM EST
A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.
Bread Financial falls short of our quality standards. First off, its revenue growth was weak over the last five years. And while its stellar ROE suggests it has been a well-run company historically, the downside is its improving efficiency ratio shows the business has become more productive. On top of that, its weak EPS growth over the last five years shows it’s failed to produce meaningful profits for shareholders.
Bread Financial’s P/E ratio based on the next 12 months is 8.1x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere.
Wall Street analysts have a consensus one-year price target of $70.20 on the company (compared to the current share price of $72.00), implying they don’t see much short-term potential in Bread Financial.