Will Alliance Data Continue to Gain Strength? - Analyst Blog

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Alliance Data Systems Corporation ( ADS ) has been on an uptrend, reflecting investor enthusiasm so far. Shares improved about 25% since beginning third quarter till date.

Factors Driving the Uptrend

Among others, recently the company announced its September results of Private Label segment where its average receivables surged 14% year over year to approximately $7.3 million and net charge-offs were 4.3% of average receivables. Average receivables also increased 17% year over year in the third quarter of 2013.

The Retail Service business inked a long term deal by agreeing to provide its co-brand credit card and relative marketing services for CREDO. This will generate a steady additional revenue account for Alliance Data.  

Alliance Data's expert marketing and strong analytical ability is expected to enhance cardholder loyalty and repeat purchase. The partnership is expected to create a solid market opportunity for Alliance Data to leverage its marketing and co-brand offering expertise.

The company has been consistent in ensuring a steady revenue generation by inking new long term deals, renewing contracts with existing clients and through prudent global expansion initiatives in recent times. For instance during the third quarter, Alliance Data's Epsilon renewed its long term agreement with Marriot. The Retail Service business signed long term deals with Geddes group, PayPal, Coldwater Creek and Zale Corporation ( ZLC ). The company's Canadian Loyalty Business also inked a new long term agreement with Dunkin' Donuts and clothing company Old Navy.

With respect to its national rollout plan of the Dotz coalition loyalty program in Brazil, Alliance Data expanded into two new markets in Brazil's south - in the State of Santa Catarina and the city of Curitiba in the State of Parana - in mid September. We believe this will favorably impact the program's performance going forward. Alliance Data holds 37% stake in Companhia Brasileira De Servicos De Marketing (Dotz), the operator of Brazil's Dotz loyalty program.

Prior to these launches, Dotz had 8.2 million customers enrolled under the program. We expect a substantial increase in enrollment to the Dotz program as it will now reach an additional population of 8 million in Santa Catarina and the city of Curitiba.

In its second quarter earnings conference call, Alliance Data announced that it intends to enter four additional Brazilian markets in the second half of 2013. With the foray into these two markets, Dotz is perfectly on track to achieve its aim of exceeding $100 million in revenues in 2013, with 10 million collectors by the end of the year.

Brazil, as the fifth-largest populated country with more than 190 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.

Earnings Trend

With respect to earnings performance, Alliance Data delivered positive surprise in three of last four quarters with an average beat of neatly 3%. Solid performance across all the segments drove the upside. We expect Alliance Data to deliver another positive earnings surprise when it reports its third quarter results today. This is because our proven model shows that the company has the right combination of a positive Earnings ESP and Zacks Rank. Expected Surprise Prediction or ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate is +0.79% and the stock carries a Zacks Rank #2 (Buy).   

Other Stocks to Consider

Among the others in the space, Fiserv Inc. ( FISV ) and Qiwi plc ( QIWI ) each carry a Zacks Rank #1 (Strong Buy) are worth considering.



ALLIANCE DATA (ADS): Free Stock Analysis Report

FISERV INC (FISV): Free Stock Analysis Report

QIWI PLC-ADR (QIWI): Free Stock Analysis Report

ZALE CORP NEW (ZLC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: ADS , FISV , QIWI , ZLC

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