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Alliance Data (ADS) Up 174.1% in a Year: More Room to Run?

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Shares of Alliance Data Systems Corporation (ADS - Free Report) have gained 174.1% in a year compared with the industry's increase of 30.7%. The Zacks S&P 500 composite has rallied 61.2% in the said time frame. With a market capitalization of $5.2 billion, average volume of shares traded in the last three months was 1 million.



The rally was largely driven by solid Card Service segment, strategic acquisitions, and a robust capital position. Its earnings beat estimates in three of the last four quarters, average beat being 0.28%.

Return on equity of 33.9% in the trailing twelve months was better than the industry average of 25.7%, reflecting the company’s efficiency in utilizing shareholders’ fund.

Can It Retain the Momentum?

The stock has seen its estimates for 2021 and 2022 move up nearly 2.2% and 0.7%, respectively, in the past seven days that reflects investors’ optimism.

Alliance Data is well poised to gain from solid performance in Europe, Asia and Brazil, increase in finance charge yield, improved normalized average receivables, higher merchant fee revenues due to reduced payments to retailers, and increase in other servicing revenues, across its LoyaltyOne and Card Services segments. This in turn contributes to its top-line growth. The Zacks Consensus Estimate for the company’s 2022 revenues is pegged at $4.6 billion, indicating year-over-year increase of nearly 7.6%.

It estimates credit sales to grow in high single digits in 2021 with year-end receivables to be in line with 2020 level.

Alliance Data remains focused on acquisitions, which have paved the way for revenue growth 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.

The acquisition of Bread, in the fourth quarter of 2020, has opened up new opportunities, enabling Alliance Date to leverage its digital offerings to capture incremental point of sale opportunities, and to build strategic technology platform partnerships.

Alliance Data continues to maintain sufficient liquidity with over $1 billion to the parent company and nearly $350 million in cash, along with $750 million in unused revolver. At the bank level cash was $2.7 billion. The banks remain well capitalized with a total risk-based capital ratio of 19.7.

Its current dividend yield of 0.8% is higher than the industry average of 0.6%, which makes the stock an attractive pick for yield-seeking investors.

The Zacks Consensus Estimate for 2021 and 2022 earnings per share is pegged at $11.82 and $13.92, indicating year-over-year increase of nearly 25.8% and 17.7%, respectively. The expected long-term earnings growth rate is pegged at 12%.

Stocks to Consider

Some better-ranked stocks from the finance sector include Diebold Nixdorf, Incorporated (DBD - Free Report) , International Money Express, Inc. (IMXI - Free Report) and Repay Holdings Corporation (RPAY - Free Report) , each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Diebold Nixdorf surpassed estimates in three of the last four quarters and missed in the other one, the average earnings surprise being 261.88%.

The bottom line of International Money Express surpassed estimates in each of the last four quarters, the average being 11.92%.

Repay Holdings’ earnings surpassed estimates in each of the last four quarters, the average being 50.35%.

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