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ADS LONG JP MORGAN TARGETS 60% UPSIDE

Long
NYSE:ADS   Alliance Data Systems Corporation
Alliance Data Systems , hands the capture and analysis of purchase transaction data for over 145 branded credit and reward programs. The company’s clients include big names like Ulta Beauty and Pottery Barn. Alliance uses the capture data on retail transactions to better tailor the reward programs, creating more effective marketing communications and enhancing customer loyalty.

The retail recession of the first half of this year – brought on by the impact of the coronavirus pandemic on the economy – hit Alliance hard, as the company’s focus on brick-and-mortar retail clients left it exposed to the shutdowns. ADS shares fell sharply in mid-winter, and are still down; the stock is trading at a 52% loss year-to-date.

Earnings , however, have rebounded strongly after a steep loss in Q1. The coronavirus scare pushed ADS’ first quarter bottom line down to just 67 cents per share, against the forecast of $5.18. Since then, Q2 and Q3 have seen strong gains, to $1.76 and $3.36 respectively. Revenues are still down 27% yoy, but have climbed back above the $1 billion mark. On a positive note, ADS has been able to cut back on operating expenses by 33%, saving money to preserve liquidity. Also positive for Alliance, the company last month signed a definitive deal to acquire the digital payment company Bread, in a deal valued at $450 million.

JPMorgan’s Reginald Smith, reviewing Alliance Data Systems , writes of the company, “Management is moving aggressively to reposition the company and early credit and payment trends are better than feared. We are tweaking estimates modestly and remain Overweight, as we believe ADS is adequately reserved and the market still doesn’t appreciate the earnings power of the business… we believe Alliance Data is positioned to benefit from the secular shift away from traditional mass marketing toward more targeted marketing programs that provide quantifiable and measurable returns.”

In line with his Overweight (i.e. Buy) rating, the analyst gives ADS a $90 price target. This figure suggests an impressive 70% upside in the coming year. (To watch Smith’s track record, click here