Alliance Data Systems Corporation ADS remains well poised for growth driven by solid performance across its segments, sturdy balance sheet and effective capital management. The Zacks Rank #3 (Hold) private label credit card processing company has been efficiently utilizing its shareholders’ funds as reflected through its return on equity of 58.9%, which betters the industry average of 42.6%.
The stock carries an impressive VGM Score of A. This helps to identify stocks with the most attractive value, best growth and the most promising momentum.
Organic growth remains the key strength at Alliance Data. The current trend of consumer-based businesses shifting their marketing spend to data-driven marketing strategies should continue to drive revenues. The company estimates revenues of $8.2 billion in 2018.
Management projects solid segment outlook for 2018. The company estimates high single-digit revenues and low double-digit adjusted EBITDA growth in LoyaltyOne. Mid-teens or 15% growth in average credit card receivable portfolio to $2.5 billion and adjusted EBITDA in 20% range is estimated for Card Service. Management estimates revenues to be down 3-5% but EBITDA margin to expand 100 bps on solid cost management at Epsilon. Management expects core EPS between $22.50 and $23.00 for 2018, up 16% to 19% over 2017.
Given a solid capital position, the company has been pursuing initiatives to ramp up growth. Its inorganic story remains impressive and will help it expand geographically, strengthen digital agency presence, boost the LoyaltyOne business, fortify digital marketing channel and expand its Omni-Channel distribution capabilities. However, strategic initiatives including expansion efforts should continue to escalate expenses in the coming quarters.
Shares of Alliance Data have lost 31.7% year to date compared with the industry’s 11.9% increase.
Nonetheless, the company boasts solid capital management. Its dividend yield of 1.3% betters the industry average of 1.1%. The company also has a $1 billion worth share buyback program under its authorization.
The Zacks Consensus Estimate for earnings indicates a year-over-year increase of 10.2% on 5.2% higher revenues in 2019. The expected long-term earnings growth rate is pegged at 12.5%. This company has a favorable Growth Score of B.
Stocks to Consider
Some better-ranked property and casualty insurers are Cardtronics PLC CATM, Green Dot Corporation GDOT and Total System Services, Inc. TSS.
Cardtronics provides automated consumer financial services through its network of automated teller machines and multi-function financial services kiosks. The company delivered positive surprise of 47.62% in the last reported quarter. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Green Dot Corporation operates as a pro-consumer bank holding company that provides personal banking for the masses. The company delivered positive surprise of 34.01% in the last reported quarter. The stock sports a Zacks Rank #1
Total System Services provides payment processing, merchant, and related payment services to financial and nonfinancial institutions worldwide. The company pulled off a positive surprise of 6.42% in the last reported quarter. The stock carries a Zacks Rank #2.
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