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Here's Why Hold Strategy is Apt for Alliance Data (ADS) Stock
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Alliance Data Systems Corporation is well-poised to gain from higher average credit card and loan receivables, robust cash position and strategic acquisitions.
The company has been effectively improving its return on equity (ROE) over the years. ROE of 36.6% in the trailing twelve months was better than the industry average of 26.7%, reflecting the company’s efficiency in utilizing shareholders’ fund.
The company’s revenue growth has been improving over the past several years, attributable to solid performance at LoyaltyOne and Card Services segments.
The LoyaltyOne segment is poised to benefit from better and strengthened business conditions, improved AIR MILES reward miles activity and higher revenues from short-term loyalty programs.
In the Card Services segment, revenue growth on a sequential basis was aided by card gross yield improvement as the impact of COVID-related customer relief on fees was mitigated. Increase in finance charges, higher average credit card and loan receivables, improved servicing fees and merchant fee revenues, increased sales and rebound in yield drove sequential revenue improvement. Credit sales improved as retailers continued reopening and consumer spending increased.
As part of its strategic initiatives, the company remains focused on acquisitions, which have contributed to growth in revenues and profitability. Acquisitions have helped the company expand international footprint, consolidate its position in digital agency, boost the LoyaltyOne business, strengthen position in the digital marketing channels as well as expand its omni-channel distribution capabilities. With solid financial strength and flexibility, we expect Alliance Data to pursue strategic acquisitions that support international expansion with solid growth opportunities.
In the fourth quarter of 2020, it closed the buyout of Bread, a technology-driven digital payments company, for $450 million in a cash-stock transaction to expand its digital offerings.
The company has been strengthening its balance sheet. It continues to build capital and liquidity through income improvement and strong cash flow. Both its leverage ratio and times interest earned has been improving; ensuring that Alliance Data will be able to meet current obligations without any difficulties. Capital improved in the third quarter with a total risk-based capital ratio of 20.1%, up 40 basis points sequentially. Internally generated funds and other sources of liquidity are expected to meet working capital needs, capital expenditures, and other business requirements in the coming quarters.
Its stable cash flow profile supports an attractive annual dividend, yielding 1.1%, and betters the industry average of 0.5%, making this an attractive pick for yield-seeking investors. However, the company suspended its stock repurchase program in April 2020.
Shares of this Zacks Rank #3 (Hold) stock have gained 96.3% in the past six months, outperforming the industry’s increase of 12.9%. We expect higher revenues, solid card services performance, strategic initiatives as well as its robust capital position to drive the stock going forward.
FleetCor Technologies surpassed bottom-line estimates in each of the last four quarters. It has a trailing four-quarter earnings surprise of 5.02%, on average.
Usio surpassed bottom-line estimates in three of the last four quarters. It has a trailing four-quarter earnings surprise of 15.87%, on average.
Nasdaq surpassed bottom-line estimates in each of the last four quarters. It has a trailing four-quarter earnings surprise of 4.19%, on average.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.
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Here's Why Hold Strategy is Apt for Alliance Data (ADS) Stock
Alliance Data Systems Corporation is well-poised to gain from higher average credit card and loan receivables, robust cash position and strategic acquisitions.
The company has been effectively improving its return on equity (ROE) over the years. ROE of 36.6% in the trailing twelve months was better than the industry average of 26.7%, reflecting the company’s efficiency in utilizing shareholders’ fund.
The company’s revenue growth has been improving over the past several years, attributable to solid performance at LoyaltyOne and Card Services segments.
The LoyaltyOne segment is poised to benefit from better and strengthened business conditions, improved AIR MILES reward miles activity and higher revenues from short-term loyalty programs.
In the Card Services segment, revenue growth on a sequential basis was aided by card gross yield improvement as the impact of COVID-related customer relief on fees was mitigated. Increase in finance charges, higher average credit card and loan receivables, improved servicing fees and merchant fee revenues, increased sales and rebound in yield drove sequential revenue improvement. Credit sales improved as retailers continued reopening and consumer spending increased.
As part of its strategic initiatives, the company remains focused on acquisitions, which have contributed to growth in revenues and profitability. Acquisitions have helped the company expand international footprint, consolidate its position in digital agency, boost the LoyaltyOne business, strengthen position in the digital marketing channels as well as expand its omni-channel distribution capabilities. With solid financial strength and flexibility, we expect Alliance Data to pursue strategic acquisitions that support international expansion with solid growth opportunities.
In the fourth quarter of 2020, it closed the buyout of Bread, a technology-driven digital payments company, for $450 million in a cash-stock transaction to expand its digital offerings.
The company has been strengthening its balance sheet. It continues to build capital and liquidity through income improvement and strong cash flow. Both its leverage ratio and times interest earned has been improving; ensuring that Alliance Data will be able to meet current obligations without any difficulties. Capital improved in the third quarter with a total risk-based capital ratio of 20.1%, up 40 basis points sequentially. Internally generated funds and other sources of liquidity are expected to meet working capital needs, capital expenditures, and other business requirements in the coming quarters.
Its stable cash flow profile supports an attractive annual dividend, yielding 1.1%, and betters the industry average of 0.5%, making this an attractive pick for yield-seeking investors. However, the company suspended its stock repurchase program in April 2020.
Shares of this Zacks Rank #3 (Hold) stock have gained 96.3% in the past six months, outperforming the industry’s increase of 12.9%. We expect higher revenues, solid card services performance, strategic initiatives as well as its robust capital position to drive the stock going forward.
Stocks to Consider
Some better-ranked stocks from finance sector include FleetCor Technologies , Usio Inc. (USIO - Free Report) and Nasdaq (NDAQ - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
FleetCor Technologies surpassed bottom-line estimates in each of the last four quarters. It has a trailing four-quarter earnings surprise of 5.02%, on average.
Usio surpassed bottom-line estimates in three of the last four quarters. It has a trailing four-quarter earnings surprise of 15.87%, on average.
Nasdaq surpassed bottom-line estimates in each of the last four quarters. It has a trailing four-quarter earnings surprise of 4.19%, on average.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.
Click here for the 6 trades >>