A month has gone by since the last earnings report for Alliance Data Systems (ADS). Shares have lost about 12.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Alliance Data due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Alliance Data Q2 Earnings Miss Estimates, Down Y/Y
Alliance Data's operating earnings of $3.83 per share for the second quarter of 2019 missed the Zacks Consensus Estimate of $4.12. The bottom line declined 12% year over year.
Soft performance of the Card Service segment weighed on the results.
Behind the Headlines
Alliance Data reported total revenues of $1.3 billion, down 3% year over year. The downside was due to lower revenues from Card Services segment.
Operating expenses increased 1.1% year over year to $1 billion. Operating income decreased 15% year over year to $337.3 million largely due to lower revenues and higher expenses.
Adjusted EBITDA (net of funding costs) declined 15% year over year to $310 million.
LoyaltyOne: Revenues totaled $251 million, up 1% year over year. Adjusted EBITDA decreased 27% to $51 million. AIR MILES reward miles issued decreased 2% due to less promotional activity in the grocery vertical. AIR MILES reward miles redeemed declined 2%.
Card Services: Revenues were $1.1 billion, down 4% year over year. Adjusted EBITDA was $287 million, down 14% year over year.
As of Jun 30, 2019, cash and cash equivalents was $4 billion, up 5.5% from Dec 31, 2018-level.
At quarter end, debt level was up 1.8% from 2018-end to $5.8 billion.
Cash from operations decreased 17.6% year over year to $1.1 billion in the first six months of the year. Capital expenditure at Alliance Data declined 6.4% year over year to $92.2 million in the same period.
The board of directors approved quarterly dividend of 63 cents, payable on Sep 26, 2019 to stockholders of record as of Sep 4, 2019.
Alliance Data estimates revenues to be $5.8 billion, up 4% from 2018. Core EPS is estimated to be $19.50 -$19.75, down 1% from 2018.
On Jul 1, Alliance Data divested Epsilon business to Publicis Groupe. The net proceeds are expected to be used to retire $2.4 billion of corporate debt and repurchase up to $1.1 billion of shares. The company modified Dutch auction to purchase $700 to $750 million worth of common shares.
The company also acquired several client portfolios aggregating over $900 million in June, which were expected to occur later in the year.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
Currently, Alliance Data has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Alliance Data has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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