On May 9, 2014, we issued an updated research report on
Alliance Data System Corporation
Adjusted earnings of $2.64 per share in the first quarter of 2014
surpassed the Zacks Consensus Estimate by 1.9% and improved 12%
year over year on strong segmental performance. It delivered
back-to-back positive surprises for two quarters.
The company's inorganic story seems impressive with several
strategic acquisitions. With solid financial strength and
flexibility, Alliance Data is well positioned to pursue strategic
acquisitions to ramp up its growth profile.
The dotz coalition loyalty program in Brazil, where Alliance Data
has 37% stake, now operates in 9 regions with about 12 million
collectors enrolled under the program. The company intends to enter
four additional Brazilian markets by 2014 taking the tally to 13.
As the fifth-largest populated country, Brazil offers ample
opportunities to Alliance Data to weave success out of a popular
coalition loyalty program.
With respect to enhancing shareholders' value, this Zacks Rank #3
(Hold) financial transaction service provider remains committed to
share buy back. The company's share repurchase authorization has
increased nearly $3.6 billion since the first quarter of 2008
following the latest approval of $400 million this January.
However, about $2.32 billion has been exhausted to date.
Banking on its operational strength, Alliance Data raised its 2014
revenue expectation to $5.25 billion from $5.14 billion guided
earlier. This translates into a year-over-year increase of 22% (9%
organic growth). Subsequently, core EPS expectation moved north to
$12.25 from $12.20 (up 22% year over year). The Zacks Consensus
Estimate is pegged at $11.61, translating into a year-over-year
increase of 22.9%.
However, Alliance Data has been experiencing expense increases over
the past few years. If the magnitude of revenue growth lags
increase in operating expenses, it might take a toll on operating
With more than 60% of the Canadian households collecting reward
miles, AIR MILES Reward Program has positioned itself as Canada's
premier coalition loyalty program. If actual redemptions by AIR
MILES Reward Program becomes higher than expected, or if there is
an increase in costs related to redemption of AIR MILES,
profitability might be affected. In addition, loss of clients might
prove unfavorable for Alliance Data's top line as the company
generates a major portion of its revenues from its 10 major
Other Stocks to Consider
Other financial transaction service providers, which look
attractive at current levels, include
Fidelity National Information Services, Inc
Green Dot Corp.
). While Fidelity National sports a Zacks Rank #1 (Strong Buy),
Green Dot and Xoom carry a Zacks Rank #2 (Buy).
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