Bread Earnings: Continued Progress on Deleveraging, While Wide Net Interest Margins Support Results

No-moat-rated Bread Financial reported solid third-quarter results that came in better than we had expected, as the company benefited from a surprisingly high net interest margin. The bank’s net interest income rose 5% from last year to $1.03 billion despite the sale of the BJ’s Wholesale portfolio earlier this year. Meanwhile, Bread’s net income rose 29% to $173 million, which translates to a return on average equity of 28.7%. As we incorporate these results, we do not plan to change our $50 fair value estimate for Bread, and we see the shares as materially undervalued.