Time to Add Alliance Data (ADS) to Enrich Your Portfolio

Shares of Alliance Data Systems CorporationADS gained 5.46% quarter to date. Though the company's shares underperformed the Zacks categorized Financial Transaction Service industry's increase of 6.19%, there is a host of positives to drive the stock higher. Notably, the shares returned more than the S&P 500 over the same time frame. Alliance Data has a trailing 12-month return on equity (ROE) of 57%, substantially higher than the industry average of 32.7%.

Alliance Data is set to deliver a positive surprise when it reported second quarter earnings on Jun 20. This is because its Earnings ESP of +2.59% when combined with a favorable Zacks Rank #2 (Buy), denotes a positive surprise. The company has delivered positive surprises in two of the last four quarters with an average beat of 2.15%.

Though there was no earnings momentum for 2017, the Zacks Consensus Estimate increased by 3 cents for 2018 over the last 60 days. The company also carries a VGM Score of B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Also, the price earnings growth ratio of 1.07 compares favorably with the industry average of 1.48

Alliance Data is poised to deliver a solid performance banking on its segmental strength. The company is estimated to report core earnings per share of $18.50 on revenues of $7.7 billion. While the top line translates to 8.5% year-over-year growth, the bottom line represents 10% improvement over the last year. Alliance Data's revenue has increased at a five-year CAGR of 18% mainly driven by organic growth.

The company remains well poised to retain the momentum as it will continue to benefit from the current trend in consumer-based businesses, shifting their marketing spend to data-driven marketing strategies. Also, the company's deliberate acquisitions continue to lend support to its sturdy results.

With respect to the segmental strength, Alliance Data's management expects a strong performance in one of its three segments - BrandLoyalty - in 2017 with about 10% top and bottom line growth. Another segment, Epsilon remains well-positioned for growth, stemming from favorable results in auto, CRM and data. Management anticipates this segment to record about 4% growth in 2017 (revenues to be $2.24 billion and EBITDA to be $0.5 billion). Though management estimates the card receivable growth to moderate in 2017 to 15% from 20% in 2016, new signings are likely to lead to a $2-billion vintage in 2017.

Stocks to Consider

Investors interested in the financial transaction service industry can look for Equifax Inc. EFX , Visa Inc. V and QIWI plc QIWI .

Qiwi plc operates electronic online payment systems primarily in the Russian Federation, Kazakhstan, Moldova, Belarus, Romania, the United Arab Emirates and internationally. The company has delivered a four-quarter average surprise of 23.61%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Equifax provides information solutions and human resources business process outsourcing services. The company delivered a four-quarter average surprise of 4.02%. The stock carries a Zacks Rank #2.

Visa Inc. operates retail electronic payments network worldwide. The company delivered a four- quarter average surprise of 7.24%. The stock carries a Zacks Rank #2.

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Equifax, Inc. (EFX): Free Stock Analysis Report

Visa Inc. (V): Free Stock Analysis Report

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QIWI PLC (QIWI): 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 Nasdaq, Inc.

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

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