Why Is Alliance Data (ADS) Up 4.1% Since Last Earnings Report?

It has been about a month since the last earnings report for Alliance Data Systems (ADS). Shares have added about 4.1% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Alliance Data due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Alliance Data Misses on Q1 Earnings, Suspends ‘20 View

Alliance Data’s first-quarter 2020 operating earnings of 75 cents per share missed the Zacks Consensus Estimate by 84.8%. The bottom line also declined 80% year over year.The company’s results were dented by increased provision expense.

Behind the Headlines

Alliance Data reported total revenues of $1.4 billion, up 4% year over year. Notably, the top line outpaced the Zacks Consensus Estimate by 4.2%. The upside can be attributed to strong performance of the company’s Card Services segment, which contributed 85.7% to the first quarter top line.

Operating expenses increased 24.6% year over year to $1.2 billion, primarily due to rise in provision expense.

Adjusted EBITDA (net of funding costs) declined 74% year over year to $83 million.

Segment Update

Card Services revenues were $1.2 billion, up 5% year over year. This segment benefited from an improved gross yield. However, adjusted EBITDA was $47 million, down 84% year over year.

LoyaltyOne revenues totaled $198.1 million, down 3% year over year. The downside can be attributable to the company’s decision to divest Precima in January of this year. Adjusted EBITDA increased 5% to $57.8 million. AIR MILES reward miles issued was up 5% year over year, primarily due to rise in sponsor promotions in the beginning of the first quarter.

Dividend Update

Concurrent with the first-quarter 2020 earnings release, the company’s board of directors approved a quarterly cash dividend of 21 cents per share, which reflects a reduction of 66.7% from the prior dividend payout of 63 cents. The dividend will be paid on Jun 18, 2020 to shareholders of record as on May 14.

Financial Update

As of Mar 31, 2020, cash and cash equivalents was $4.5 billion, up 15% from Dec 31, 2019-level.At quarter end, debt level increased 7.9% from 2019-end to $3.1 billion.

2020 Guidance Withdrawn

The COVID-19 pandemic has sparked recessionary fears globally. It has also put the entire U.S. economy in a sluggish phase. Consequently, Alliance Data withdrew its prior guidance of 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -53.68% due to these changes.

VGM Scores

At this time, Alliance Data has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Alliance Data has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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