On Dec 22, 2015, we issued an updated research report on Alliance Data Systems Corporation ADS.
Riding on strong performances across all its segments, Alliance Data has been outperforming expectations over the past several quarters. Going ahead, the segments are poised to deliver growth in 2015 and beyond as well, riding on their core strengths.
The company’s inorganic growth story also seems impressive on strategic buyouts. Alliance Data eyes acquisitions that are a strategic fit for the company. With solid financial strength and flexibility, we expect Alliance Data to pursue strategic acquisitions that would boost its growth profile.
Additionally, the dotz coalition loyalty program in Brazil, where the company has a 37% stake, is performing well. Alliance Data targets 18 million collectors by 2015-end, up 30% over 2014.
Meanwhile, sustained solid operational results have helped the company strengthen its financial flexibility and encouraged shareholder friendly moves. To this end, the company targets $1 billion in share buybacks in full year 2015. Nevertheless, escalating expenses inducing margin contraction and dependence on limited clients for revenues pose concerns.
Also, Alliance Data expects AIR MILES reward miles issuance to grow as sponsors accelerate their promotional activity with new AIR MILES Cash initiatives. This, in turn, may weigh on revenues.
Nonetheless, Alliance Data’s sturdy inorganic background, efforts to strengthen its balance sheet to gain financial flexibility and share buybacks bode well for long-term growth. The expected long-term earnings growth rate is currently pegged at 14.5%.
With respect to earnings performance, this Zacks Rank #3 (Hold) financial transaction service provider has delivered positive earnings surprises in all of the last four quarters backed by solid organic growth and a lower share count.
Stocks to Consider
Some better-ranked stocks from the same industry are Heartland Payment Systems, Inc. HPY, Global Payments Inc. GPN and Total System Services, Inc. TSS. Each of these stocks carries a Zacks Rank #2 (Buy).
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