The latest earnings release Alliance Data Systems Corporation’s (NYSE:ADS) announced in December 2018 indicated that the business gained from a strong tailwind, eventuating to a double-digit earnings growth of 22%. Below is a brief commentary on my key takeaways on how market analysts perceive Alliance Data Systems’s earnings growth outlook over the next couple of years and whether the future looks even brighter than the past. I will be looking at earnings excluding extraordinary items to exclude one-off activities to get a better understanding of the underlying drivers of earnings.
Analysts’ outlook for this coming year seems pessimistic, with earnings reducing by -9.9%. But in the following year, there is a complete contrast in performance, with generating double digit 5.1% compared to today’s level and continues to increase to US$1.2b in 2022.
Even though it’s useful to be aware of the rate of growth each year relative to today’s figure, it may be more insightful to analyze the rate at which the earnings are growing on average every year. The pro of this approach is that we can get a better picture of the direction of Alliance Data Systems’s earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To compute this rate, I put a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 4.5%. This means that, we can expect Alliance Data Systems will grow its earnings by 4.5% every year for the next couple of years.
For Alliance Data Systems, I’ve compiled three pertinent aspects you should further research:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is ADS worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether ADS is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of ADS? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
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