On Aug 14, 2014, we issued an updated research report on
Alliance Data System Corporation
With adjusted earnings of $2.64 per share in the second quarter of
2014, the company surpassed the Zacks Consensus Estimate for three
straight quarters with an average beat of 3.7%. Alliance Data
continues to benefit from strong performance across all its
The dotz coalition loyalty program in Brazil, where Alliance Data
has a 37% stake, now operates in 10 regions with about 12.5 million
collectors enrolled under the program. The company intends to enter
three additional Brazilian markets by 2014 taking the tally to 13.
As the fifth-most 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 buyback. The company, in the first half, bought back $201.8
million worth of shares.
It has also been strengthening its balance sheet with solid
liquidity and also improving its debt capital ratio. Alliance
Data's financial flexibility enables it to capitalize on
opportunities as and when required.
Banking on its operational strength, Alliance Data raised its 2014
revenue expectation to $5.30 billion from $5.25 billion guided
earlier. This translates into a year-over-year increase of 23% (9%
organic growth). Subsequently, core EPS expectation moved north to
$12.35 from $12.25 (up 23% year over year).
The Zacks Consensus Estimate witnessed an upward revision as most
of the estimates were revised higher in the last 30 days. It was up
0.6% to $11.75 for 2014 and 1.2% to $13.73 for 2015. The estimates
translate to a year-over-year increase of 24.2% and 17.1%,
respectively. The expected long-term growth rate for the stock is
However, Alliance Data has been incurring higher expenses over the
past few years, resulting in margin contraction.
With more than 60% of the Canadian households collecting reward
miles, the AIR MILES Reward Program has positioned itself as
Canada's premier coalition loyalty program. If actual redemptions
by AIR MILES Reward Program are 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 will
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 Vantiv, Inc. (
), Green Dot Corporation (
) and Equifax Inc. (
). While Vantiv sports a Zacks Rank #1 (Strong Buy), Green Dot and
Equifax carry a Zacks Rank #2 (Buy).
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