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Here's Why You Should Retain Alliance Data in Your Portfolio

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Estimates for Alliance Data Systems Corporation have been revised upward over the past 30 days, reflecting analysts’ confidence in the stock. The stock has seen the Zacks Consensus Estimate being raised 0.8% each to $22.76 for 2018 and $25.70 for 2019.

This provider of data-driven marketing and loyalty solutions worldwide carries an impressive VGM Score of A.

Shares of the company have gained 4% in a year, underperforming the industry’s surge of nearly 33%. However, the company carries a favorable Growth Score of B.


Alliance Data’s strength across all its segments, inorganic background, strengthening of balance sheet to gain financial flexibility and share buybacks bode well for growth. For 2018, the company’s core EPS is expected between $22.50 and $23 on $8.2 billion revenues. The stock carries a Zacks Rank #3 (Hold).

Let’s focus on the factors that make Alliance Data a stock to hold on to for attractive returns.

Improving Top Line: Alliance Data’s rising revenues are attributable to its organic growth. We expect this momentum to continue with ample opportunities from the current trend in consumer-based businesses shifting the marketing spend to data-driven marketing strategies. The company estimates revenues for 2018 to be $8.2 billion, up 10% year over year.

Inorganic Growth: In a bid to grow inorganically, Alliance Data accelerated its acquisition activity, which further helped it expand globally, strengthen its digital agency capabilities, enhance the LoyaltyOne business, solidify its presence in the digital marketing channels, expand the Omni-Channel distribution abilities and also widen its presence in Brazil.

Solid Outlook for Segments: Management expects high single-digit revenues and low double-digit adjusted EBITDA growth in LoyaltyOne. In Card Service, management estimates growth in about mid-teens or by 15% in average credit card receivable portfolio to $2.5 billion and adjusted EBITDA in 20% range. For Epsilon, management expects its top line to improve in mid-single-digit and the adjusted EBITDA to grow.

Effective Capital Management: Alliance Data pursues share repurchases as a tool to mitigate the adverse impact of foreign exchange and intends to focus more on share buybacks as well as mergers and acquisitions. The company is authorized to buy back $1 billion worth of shares through July 2019. The company also initiated a dividend payment during the fourth quarter of 2016 and hiked the same by 10% in fourth-quarter 2017.

Growth Projections: The Zacks Consensus Estimate for current-year earnings per share is pegged at $22.76, representing year-over-year growth of 17.6% on 4.9% higher revenues of $8.1 billion. For 2019, the consensus mark for the bottom line stands at $25.70, translating into a 12.9% year-over-year rise while the same for the top line is projected at $8.8 billion, up 9.2%.

Alliance Data has an expected long-term earnings per share growth rate of 11.9%.

Positive Earnings Surprise History: Alliance Data flaunts a stellar earnings surprise history, exceeding the Zacks Consensus Estimate in the last six quarters. This outperformance underscores the company’s operational efficiency. The average six-quarter positive earnings surprise is 8.13%.

Stocks to Consider

Some better-ranked financial transaction service providers are Cardtronics PLC , Total System Services, Inc. and WEX Inc. (WEX - Free Report) .

Cardtronics provides automated consumer financial services through its network of automated teller machines (ATMs) and multi-function financial services kiosks. It pulled off an average four-quarter earnings surprise of 27.17%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Total System Services provides electronic payment processing, merchant services and related services to financial and non-financial institutions in the United States and internationally. It came up with an average four-quarter positive surprise of 7.67%. The stock carries a Zacks Rank #2 (Buy).

WEX provides corporate card payment solutions in North and South America, the Asia Pacific, as well as Europe. It delivered an average four-quarter beat of 2.97%. The stock has a Zacks Rank of 2.

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