Alliance Data System Corporation
) has made several strategic acquisitions to grow inorganically.
With solid financial strength and flexibility, we expect Alliance
Data to pursue strategic acquisitions that would help it ramp up
its growth profile.
The dotz coalition loyalty program in Brazil, where the company
has a 37% stake, continued its national rollout. dotz now
operates in 9 regions markets with more than 10 million
collectors enrolled under the program. The company aims to enter
four additional Brazilian markets by 2014. Brazil, as the
fifth-largest populated country with more than 199 million
citizens, offers ample opportunities for Alliance Data to weave
success out of a popular coalition loyalty program, and thus ramp
up its dotz program in the years to come.
This Zacks Rank #2 (Buy) financial transaction service provider
remains committed toward returning value to its shareholders. The
company's share repurchase authorization has scaled nearly $3.2
billion since the first quarter of 2008 following the latest
approval of $400 million last December. However, about $2.2
billion has been exhausted to buy back 37.7 million shares to
Alliance Data raised its 2014 revenue expectation to $5.14
billion from $4.64 billion guided earlier. It translates into a
year-over-year increase of 19% (8% organic growth). Core EPS
expectation is now raised to $12.20 from $12.00 (up 22% year over
year). The Zacks Consensus Estimate is pegged at $11.6%,
translating into a year-over-year increase of 23.3%.
However, Alliance Data has been experiencing increasing expenses
over the past few years. If the magnitude of revenue growth lags
that of increase in operating expenses, it might take a toll on
operating margin expansion.
With more than 60% of the Canadian household collecting reward
miles, the AIR MILES Reward Program has positioned itself as
Canada's premier coalition loyalty program. In the event of
actual redemptions by AIR MILES Reward Program being higher than
expected, or if there is an increase in costs related to
redemption of AIR MILES reward miles, profitability will likely
be affected. Also, loss of clients might prove unfavorable for
Alliance Data's top line as ten of the company's major clients
generate a major portion of its revenues.
Other stocks to Consider
Other financial transaction service providers, which look
attractive at current levels, include
Fidelity National Information Services, Inc
Global Payments Inc
Total System Services, Inc
). While Fidelity National carries a Zacks Rank #1 (Strong Buy),
Global Payments and Total System share the same Zacks rank as
ALLIANCE DATA (ADS): Free Stock Analysis
FIDELITY NAT IN (FIS): Free Stock Analysis
GLOBAL PAYMENTS (GPN): Free Stock Analysis
TOTAL SYS SVC (TSS): Free Stock Analysis
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