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Time to Add Alliance Data (ADS) to Enrich Your Portfolio

Shares of Alliance Data Systems Corporation ADS gained 5.46% quarter to date. Though the company’s shares underperformed the Zacks categorized Financial Transaction Service industry’s increase of 6.19%, there is a host of positives to drive the stock higher. Notably, the shares returned more than the S&P 500 over the same time frame.  Alliance Data has a trailing 12-month return on equity (ROE) of 57%, substantially higher than the industry average of 32.7%.

Alliance Data is set to deliver a positive surprise when it reported second quarter earnings on Jun 20. This is because its Earnings ESP of +2.59% when combined with a favorable Zacks Rank #2 (Buy), denotes a positive surprise. The company has delivered positive surprises in two of the last four quarters with an average beat of 2.15%.

Though there was no earnings momentum for 2017, the Zacks Consensus Estimate increased by 3 cents for 2018 over the last 60 days. The company also carries a VGM Score of B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Also, the price earnings growth ratio of 1.07 compares favorably with the industry average of 1.48

Alliance Data is poised to deliver a solid performance banking on its segmental strength. The company is estimated to report core earnings per share of $18.50 on revenues of $7.7 billion. While the top line translates to 8.5% year-over-year growth, the bottom line represents 10% improvement over the last year. Alliance Data’s revenue has increased at a five-year CAGR of 18% mainly driven by organic growth.

The company remains well poised to retain the momentum as it will continue to benefit from the current trend in consumer-based businesses, shifting their marketing spend to data-driven marketing strategies. Also, the company’s deliberate acquisitions continue to lend support to its sturdy results.   

With respect to the segmental strength, Alliance Data’s management expects a strong performance in one of its three segments — BrandLoyalty — in 2017 with about 10% top and bottom line growth. Another segment, Epsilon remains well-positioned for growth, stemming from favorable results in auto, CRM and data. Management anticipates this segment to record about 4% growth in 2017 (revenues to be $2.24 billion and EBITDA to be $0.5 billion). Though management estimates the card receivable growth to moderate in 2017 to 15% from 20% in 2016, new signings are likely to lead to a $2-billion vintage in 2017.

Stocks to Consider

Investors interested in the financial transaction service industry can look for Equifax Inc. EFX, Visa Inc. V and QIWI plc QIWI.

Qiwi plc operates electronic online payment systems primarily in the Russian Federation, Kazakhstan, Moldova, Belarus, Romania, the United Arab Emirates and internationally. The company has delivered a four-quarter average surprise of 23.61%. The stock sports a Zacks Rank #1 (Strong Buy). You can see https://www.zacks.com/stocks/buy-list/?ADID=zp_1link&ICI... _1link">the complete list of today’s Zacks #1 Rank stocks here.

Equifax provides information solutions and human resources business process outsourcing services. The company delivered a four-quarter average surprise of 4.02%. The stock carries a Zacks Rank #2.

Visa Inc. operates retail electronic payments network worldwide. The company delivered a four- quarter average surprise of 7.24%. The stock carries a Zacks Rank #2.

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Equifax, Inc. (EFX): Free Stock Analysis Report
 
Visa Inc. (V): Free Stock Analysis Report
 
Alliance Data Systems Corporation (ADS): Free Stock Analysis Report
 
QIWI PLC (QIWI): Free Stock Analysis Report
 
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