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Alliance Data Eyes Strategic Options for Epsilon, Conversant

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Alliance Data Systems Corporation (ADS - Free Report) is looking to explore strategic alternatives for its Epsilon business and its digital media arm Conversant. The strategic alternatives include potential divestiture of the business.

In 2004, Alliance Data acquired Epsilon Data Management, a leading provider of integrated direct marketing solutions, for $300 million to ramp up its marketing capabilities and fortify presence in North America. Conversant, a leading global provider of data-driven marketing and loyalty solutions, was acquired by Alliance Data in a cash stock transaction in 2013 and was merged with Epsilon.

The Epsilon business has been witnessing waning sales for some time. The top line, through the first nine months of 2018, decreased 4% attributable to declines in lower margin agency and site-based display product offerings. In fact, continued weakness in certain Epsilon product offerings and the initial impact of strategic initiatives induced the company to lower its 2018 net revenue and pro-forma revenues guidance to $7.9 billion and $8.2 billion, respectively.

The Zacks Rank #3 (Hold) financial transaction service provider noted that enhancing Epsilon's exclusive assets requires growth and capital allocation strategies. However, its operations differ from its Card Services business (contributing lion’s share in total revenue). Thus, to unlock full potential of Epsilon, Alliance Data has decided to explore strategic alternatives. Also, following a divestiture, the company expects to intensify focus on growth and realignment for Alliance Data 2.0.

Alliance Data has stated that if the divestiture materializes, the proceedings will be deployed to de-lever its balance sheet as well as return capital to shareholders via dividends and share buyback. The company aims to lower corporate leverage ratio to 2.2 or lower by 2018-end.

Shares of Alliance Data have lost 23.5% year to date against the industry’s increase of 12.7%. Organic growth strength, a realigned portfolio and effective capital deployment should help the stock turn around.

Stocks to Consider

Some better-ranked financial transaction service provider are Cardtronics plc (CATM - Free Report) , Envestnet, Inc. (ENV - Free Report) and Green Dot Corporation (GDOT - Free Report) . Each of these stocks sports a Zacks Rank#1 (Strong Buy). YYou can see the complete list of today’s Zacks #1 Rank  stocks here.

Cardtronics provides automated consumer financial services through its network of automated teller machines (ATMs) and multi-function financial services kiosks. The company delivered positive surprise of 47.62% in the last reported quarter.

Envestnet provides intelligent systems for wealth management and financial wellness in the United States and internationally. The company delivered positive surprise of 6.00% in the last reported quarter.

Green Dot operates as a pro-consumer bank holding company that provides personal banking for the masses. The company delivered positive surprise of 34.09% in the last reported quarter.

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