Investment Case Update: June 12, 2026
Price: $101.71 (6/12/26)
Market Capitalization: $4.1B
Enterprise Value: $4.4B
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. 27.4% in 1Q26). Additionally, management seems well-prepared for a challenging operating environment, as Bread has boosted its common equity tier 1 (CET1) ratio by 300bps since the end of 2021 to 13.3% as of 1Q26, which rivals the capital position of large banks; meanwhile reserve rates >11%, compare favorably to a net loss rate <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 ~37% since the end of 2020 to $8.7B as of 1Q26, or 48% of total funding, compared to only 6% in early 2020. Management’s increasing reliance on DTC funding continues to lower its cost of capital, helping Bread’s tangible book value (TBV) per share more than triple between the end of 2020 and 1Q26. TBV/share currently stands at $61.57, implying shares are trading at a P/TBV multiple of 1.7x, or a roughly 38% discount to peers (SYF, OMF, ALLY, SLM, COF, SOFI, CACC, ENVA).
How Management Allocates Capital
Management’s top priorities in the near term are investing in the core business and technology, while mitigating any negative impacts on their capital ratios due to current macroeconomic headwinds, as they sit near the low end of their medium-term CET1 ratio target of 13-14% (13.3% in 1Q26). After slashing parent-level debt in half between the end of 2021 and 2024 and achieving their target leverage ratio, management has greater financial flexibility to pursue new growth opportunities (i.e. add new partners to network) and return capital to shareholders. Robust capital generation and a vastly improved balance sheet have allowed management to more aggressively return capital to shareholders recently, as evidenced by $358MM of share buybacks over the last 12 months (8.7% of market cap), leaving $690MM of remaining buyback authorization as of quarter-end, supplemented by an annualized dividend yield of ~0.9%.
We originally posted our investment case for BFH on November 4, 2025.
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