On Feb 19, 2014, shares of Alliance Data Systems Corporation (ADS) touched a new 52-week high of $285.53. The momentum was driven by solid fourth quarter and full-year 2013 earnings results. The 1-year return from the stock came in at 80.6%, way ahead of the S&P’s return of 20.3%.
The fourth-quarter earnings figure at Alliance Data clocked a positive surprise of 2.8% and improved 30% year over year. Strong performances across all its segments aided the outperformance.
The dotz coalition loyalty program in Brazil, where the company has a 37% stake, continued its national rollout. Alliance Data also expanded its dotz loyalty program to two new Brazilian markets – Joao Pessao and Soracaba, taking the tally to 9 as of date.
The Zacks Consensus Estimate for 2014 and 2015 moved up riding on the strength of solid earnings results. While it increased 0.3% to $11.64 for 2014 over the last 30 days, it moved up 1.1% to $11.37 for 2015. The estimates translate into a year-over-year improvement of 23.3% and 14.8% respectively.
With respect to returning value to shareholders, in 2013, the company spent $231 million of its $400 million board authorization to repurchase 1.4 million shares. In addition, the board of directors approved a new $400 million share buyback program. Alliance Data’s continued share repurchase activity reflects its strong financial position, which in turn, is sustained by solid operational performance at the company.
Continued focus on strategic acquisitions to grow inorganically, the national rollout of its dotz coalition loyalty program in Brazil, and inking of long-term deals are expected to drive solid numbers ahead at Alliance Data.
Alliance Data raised its 2014 revenue expectation to $5.14 billion from $4.64 billion guided earlier. This translates into a year-over-year increase of 19% (8% organic growth). Core EPS expectation has also moved north to $12.20 from $12.00 (up 22% year over year). The overall long-term earnings growth rate for this stock is projected at 13.8%.
Alliance Data presently carries a Zacks Rank #3 (Hold). Some better-ranked financial transaction service providers worth considering include Envestnet, Inc. (ENV), Global Payments Inc. (GPN) and VeriFone Systems, Inc. (PAY). All these stocks carry a Zacks Rank #2 (Buy).
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