Alliance Data Systems Corp
(ADS - Analyst Report
) Sales and earnings
surprises have helped push ADS higher.
Alliance Data Systems offers customer loyalty programs, database
marketing services, marketing strategy consulting, analytics and
creative services, permission-based e-mail marketing,
credit card programs.
Earnings and Sales Surprises Help
ADS had a big beat last quarter, as the company reported earnings of
$2.16 per share, well ahead of the Zacks Consensus Earnings Estimates of
$1.78 per share. The stock moved up 5% as a result of the earnings but
the move could have been higher. Company guidance for the following quarter came in a
little light of expectations which may have depressed the stock reaction to such a big beat.
Earnings surprises for each of the last three reported quarters give us
confidence that the company will continue the positive trend in the
coming quarter. The last time the company missed was the September
quarter of 2010. Despite the miss on earnings, the stock moved higher
by 6% following the announcement.
Bottom line beats are what drive stocks, as earnings estimates are
subsequently moved higher as a result. Top line beats are good as well,
as its an indication the core business continues to grow. Without
revenue growth, expenses have to move towards zero to see earnings
growth. Thankfully, ADS has seen top line beats in its last six
Large Buyback will aid earnings
A $400 million buyback was announced in late December, replacing an
existing buyback program that was slated to expire at the end of the
year. The buyback will serve to lower the number of shares outstanding,
or the divisor in the earning per share equation. That stated, the
impact of a $400 million buyback on a $5 billion company is not going to
be very significant in any single quarter.
ADS is a key player in its industry and trades at a slight discount when
looking at trailing twelve months PE. When looking forward, the company
trades at a slight premium to the industry. Being a major player in the
industry means the company will play a bigger role in the overall
average. This is the case for ADS.
ADS had a pretty good 2011, and more of the same is expected for 2012.
Recent weakness in late November sent the stock down close to its 200
day moving average, but quickly bounced back. ADS is a Zacks #1 Rank
Brian Bolan is the Aggressive Growth Stock Strategist for Zacks.com.
is also the Editor in charge of the Zacks
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