Bread Financial Gains on Earnings Beat, While Alliance Resource Partners Falls in Sympathy with Coal Prices
Last week, the Income Strategy’s representative account rose 2.80% (net of fees), outperforming the ICE BofA Merrill Lynch High Yield Master II Index’s 0.64% gain and outperforming the S&P 500’s 1.07% gain. (Exhibit 1). The strategy ended the week down -1.97% YTD, or 194 basis points behind the high yield index and 459 basis points behind the S&P 500.
Exhibit 1: Performance of Income Strategy Representative Account Net of Fees Versus High Yield, Equity Indices, Through 1/26/20241
Time Period | Income Strategy Representative Account | ICE BofA Master High Yield II Index | S&P 500 Index |
Last Week (1/19 – 1/26) | 2.80% | 0.64% | 1.07% |
MTD | -1.97% | -0.03% | 2.62% |
QTD | -1.97% | -0.03% | 2.62% |
YTD | -1.97% | -0.03% | 2.62% |
1 Year | 3.82% | 9.14% | 22.43% |
5 Year | 3.93% | 4.43% | 14.85% |
Inception (annualized since 2/28/2014) | 3.55% | 4.28% | 12.33% |
Five equities comprised last week’s top 5 contributors. Bread Financial Holdings (BFH) reported 4Q23 revenue of $1.02B, -1.5% Y/Y, ahead of consensus of $978.9MM, and EPS of $0.90, compared to a 4Q22 net loss per share of -$2.68, well ahead of consensus expectations for a net loss per share of -$0.76. The company’s CET1 ratio expanded 350bps Y/Y to 12.2% as of year-end, while Tangible Book Value (TBV) per share rose 48.5% Y/Y to $43.70, implying a P/TBV multiple of ~0.8x. Management provided FY24 guidance for a low to mid-single-digit decline in revenue, a low single-digit drop in average loans Y/Y, nominal positive operating leverage, and a net loss rate in the low 8% range (vs. 7.5% in FY23). AT&T (T) reported 4Q23 revenue of $32.0B, +2.2% Y/Y, ahead of consensus of $31.5B, and Adjusted EPS of $0.54, -11.5% Y/Y, below consensus of $0.56. Adjusted EBITDA for the quarter came in at $10.6B, or a margin of 33.0%, +40bps Y/Y, while FCF was $6.4B, bringing FY23 FCF to $16.8B, or a FCF yield of 13.6%. For FY24, management is guiding for wireless service revenue growth in the 3% range, Adjusted EBITDA growth in the 3% range, FCF of $17.5B (FCF yield of ~14.2% yield), and Adjusted EPS of $2.20, or a P/E of 7.9x, at the respective midpoints. Western Alliance Bancorp (WAL) reported 4Q23 net interest margin (NIM) of 3.65%, -2bps sequentially, ahead of consensus of 3.60%, and Adjusted EPS of $1.91, -3.0% sequentially, ahead of consensus of $1.88. The bank’s CET1 ratio expanded 20bps sequentially to 10.8%, while TBV/share rose 16.1% Y/Y to $46.72 (P/TBV multiple of ~1.44x), with management noting that WAL’s TBV/share has increased 8.5x that of its peers since 2013. Management provided FY24 guidance that calls for loan growth of $2.0B, deposit growth of $8.0B, a CET1 ratio >11.0%, NII growth of 7.5%, and net charge-offs (NCOs) of ~13bps, at the respective midpoints. There was no price-changing news for OneMain Holdings (OMF) or Viatris (VTRS) last week.
Exhibit 2: Significant Contributors to Income Strategy Representative Account Performance, 01/19/24 – 01/26/24
Name | Type |
Bread Financial Holdings | Equity |
OneMain Holdings Inc. | Equity |
AT&T Inc. | Equity |
Viatris Inc. | Equity |
Western Alliance Bancorp | Equity |
Four equities comprised last week’s top detractors. Alliance Resource Partners (ARLP) fell in sympathy with US coal prices, as Central Appalachia and Illinois Basin coal prices dropped -1.4% and -2.3% last week, respectively. There was no price-changing news for Stellantis NV (STLA) or Vonovia SE (VNA GY) last week.
Name | Type |
Stellantis NV | Equity |
Alliance Resource Partners | Equity |
***RECENTLY ADDED SECURITY*** | Equity |
Vonovia SE | Equity |