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Alliance Data Systems Corporation ADS has been in investors’ good books owing to strategic acquisitions, improved AIR MILES reward miles activity and credit sales performance.
The Zacks Consensus Estimate for 2021 and 2022 earnings per share is pegged at $12.3 and $13.79, indicating year-over-year increase of 30.9% and 12.1%, respectively.
The Zacks Consensus Estimate for 2021 has moved 2.1% north in the past 30 days. This should instill investors' confidence in the stock.
Earnings Surprise History
Alliance Data has a decent earnings surprise history. It beat estimates in each of the last four quarters, with the average being 45.08%.
Zacks Rank & Price Performance
Alliance Data currently carries a Zacks Rank #3 (Hold). In the past year, the stock has rallied 139.2%, outperforming the industry’s increase of 10.5%.
Return on Equity (ROE)
The company’s ROE for the trailing 12 months is 49.1%, better than the industry average of 25.7%, reflecting the company’s efficiency in utilizing shareholders’ fund. The company aims to generate solid mid-teens returns for its shareholders.
Alliance Data’s top-line growth has been improving over the past several years, attributable to solid performance at LoyaltyOne and Card Services segments.
The LoyaltyOne segment is poised to benefit from better and strengthened business conditions, improved AIR MILES reward miles activity, and higher revenues from short-term loyalty programs.
Alliance Data plans to spin off the LoyaltyOne segment into two publicly traded companies, namely Alliance Data and Spinco. This spin off will enable them to enhance their business capabilities and make them well poised for future growth. Moreover, with this spin off, Alliance Data will be able to continue with its strategic transformation, which is intended to deliver long-term, sustainable value for stockholders, associates, partners and customers.
Riding on improving consumer confidence and increased mobility, credit sales performance is expected to improve along with strong digital sales growth.
Alliance Data estimates credit sales to increase at a high single- to low-double-digit rate, with net loss rate below 6% in 2021 and in the mid-to-upper 5% range in the second quarter of 2021. Credit card and loan receivables at 2021 end are projected to be in line with 2020 end levels.
Alliance Data remains focused on expanding international footprint and consolidate its position in digital agency and thus is focusing on the acquisitions that are expected to pave the way for revenue growth and profitability. With solid financial strength and flexibility, we expect Alliance Data to pursue strategic acquisitions that support international expansion with solid growth opportunities.
The buyout of Bread for $450 million is expected to enhance Alliance Data's Enhanced Digital Suite.
Alliance Data continues to maintain sufficient liquidity with over $1.1 billion to the parent company and nearly $373 million in cash, along with $750 million in unused revolver. At the bank level, cash was $$2.5 billion and $2.9 billion in equity. The banks remain well capitalized with a total risk-based capital ratio of 22.3.
Its solid balance sheet with flexible liquidity enables efficient deployment of capital, which supports an attractive annual dividend, yielding 0.7%, and betters the industry average of 0.5%. This makes it an attractive pick for yield-seeking investors.
Stocks to Consider
Some better-ranked financial transaction service providers are Equifax EFX, Evertec EVTC and Nasdaq NDAQ, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Equifax delivered an earnings surprise of 29.61% in the last reported quarter.
Evertec delivered an earnings surprise of 14.81% in the last reported quarter.
Nasdaq surpassed bottom-line estimates in each of the last four quarters. It has a trailing four-quarter earnings surprise of 4.19%, on average.
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