What happened
A generation or two ago, common slang for money was "bread." But the financial services company that uses that word in its name, Bread Financial Holdings(NYSE: BFH), was hardly in the money this week: According to data compiled by S&P Global Market Intelligence, the stock fell more than 10%.
So what
During the week, Bread Financial was socked with two recommendation downgrades by analysts from influential companies.
The first was Bank of America's Mihir Bhatia, who knocked his recommendation down one peg to neutral from the previous buy. He also aggressively cut his price target by $8 per share to $36.
Not to be outdone, Goldman Sachs prognosticator Ryan Nash cut his take from neutral to sell, at a price target of $32.
In the research note explaining his move on the financial services stock, Bhatia cited factors such as rising credit losses and a potential major legal change in credit card late fees (in which they would be capped by law at $8, well down from the current $41).
Now what
"While 3Q loss rates are likely to be in line with expectations at 7%, we think 4Q losses could be 70-90 [basis points] higher before rising further in a seasonally weak 1Q," Bhatia wrote about Bread Financial's immediate future.
He also pointed out that the company is particularly susceptible to heavier credit losses and a sharp cut in late fees because a significant portion of its customer base consists of sub-prime borrowers.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and Goldman Sachs Group. The Motley Fool recommends Bread Financial. The Motley Fool has a disclosure policy.
