On Dec 30, 2013, shares of Alliance Data Systems Corporation (ADS) hit a new 52-week high of $260.60.
The momentum was driven by solid performance at Alliance Data. 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 for Alliance Data.
With respect to earnings trend, Alliance Data delivered positive earnings surprise in 2 of the past 4 quarters, with an average beat of 0.81%. In the last reported quarter, earnings surpassed the year-ago quarter’s figure by 15.6%. Alliance Data posted better-than-expected results based on strong performances across all its segments.
Based on solid results, Alliance Data raised its 2013 revenue expectation to $4.3 billion from $4.275 billion, in line with the Zacks Consensus Estimate. The new guidance represents 18% increase from 2012.
Expected core earnings per share (EPS) for 2013 were revised upward to $9.90 from $9.85. The new guidance represents a 14% year-over-year improvement. The Zacks Consensus Estimate for 2013 is currently pegged at $9.41, translating into a year-over-year upside of 14.9%.
Concurrently, the company unveiled its 2014 guidance, projecting core EPS of $12.00 on revenues of $4.64 billion. While revenues translate into a year-over-year increase of 8%, core EPS reflects a year-over-year improvement of 21%. Net EPS is estimated at $9.64, up 31% from the prior-year quarter. The Zacks Consensus Estimate presently stands at $11.60, reflecting a year-over-year upside of 23.3%.
The expected long-term growth rate for the stock is 14.2%.
Valuation for Alliance Data looks reasonable. The shares are trading at a 13.2% premium to the peer group average on a forward price-to-earnings basis and at a 226% premium on a price-to-book basis. Return on equity, on the other hand is 334% higher than the peer group average. The year-to-date return from the stock was 79.6%, much above the S&P’s return of 29.1%.
Alliance Data presently carries a Zacks Rank #2 (Buy). Other stocks worth considering in the financial transaction service sector include Fiserv, Inc. (FISV), Visa Inc. (V) and Heartland Payment Systems, Inc. (HPY). All these stocks hold the same Zacks Rank as Alliance Data.