Investment Case Update: July 24, 2025
Price: $61.00 (7/24/25)
Market Capitalization: $2.8B
Enterprise Value: $3.3B
What the Company Does
Formerly known as Alliance Data Systems, Bread is a consumer finance company that partners with retailers to provide private-label and co-branded credit cards and buy now, pay later products, along with retail credit cards and savings products provided directly to consumers. Some of Bread’s partners include Caesars, the NFL, Ulta Beauty, and Victoria’s Secret, to name a few, but the company focuses more on small-and medium-sized businesses that generally provide longer growth runways and better economics relative to its larger partners.
Why We Own It
Bread offers strong growth prospects and a compelling valuation with an experienced and highly capable management team. Although the company is facing near-term headwinds of elevated loss rates on its customer loans and macroeconomic uncertainty, management is targeting a mid-to-high single-digit loan growth rate over the long term with returns on tangible common equity (ROTCE) in the mid-to-high 20% range (vs. 22.7% in 2Q25). Additionally, management seems well-prepared for a challenging operating environment, as Bread has boosted its common equity tier 1 (CET1) ratio by 270 basis points (bps) since the end of 2021 to 13.0% as of 2Q25, which rivals the capital position of large banks, and hiked reserve rates to nearly 12%, despite a net loss rate of <8%, implying a potential EPS tailwind in the future if the economic environment does not significantly worsen from here.
The company has also developed a more diverse and stable funding base, as the company’s online direct-to-consumer (DTC) deposits have grown at a compound annual growth rate of ~41% since the end of 2020 to $8.1B at the end of 2Q25, or 45% of total funding, compared to only 6% in early 2020. Management is targeting a DTC deposit base that represents half of total funding in the future, which will help Bread reduce their reliance on more expensive funding sources (i.e. wholesale deposits and unsecured funding), which should ultimately result in a lower cost of capital. Management’s actions seem to be paying off, as Bread’s tangible book value (TBV) per share has more than tripled between the end of 2020 and the end of 2Q25, with TBV/share currently standing at $52.21, implying shares are trading at a P/TBV multiple of 1.2x, or a roughly 64% discount to peers (SYF, OMF, ALLY, DFS, SLM, COF, SOFI, CACC, ENVA).
How Management Allocates Capital
Management’s top priority in the near-term is focused on tackling upcoming debt maturities while mitigating any negative impacts on their capital ratios due to current macroeconomic headwinds, as they target a CET1 ratio of 14% over the medium-term. After meeting these obligations and investing in the core business, management will evaluate new growth opportunities, such as adding new partners to its network or potential acquisitions. Management also prudently prioritizes shareholder returns, as it has repurchased $150MM worth (5.3% of current market cap) of shares year-to-date to go along with the stock’s ~1.4% annualized dividend yield.