Alliance Data's (ADS) August Average Receivables Improve

Alliance Data Systems Corporation’s (NYSE:ADS) average receivables of $15.7 billion increased 13% in August. For the eight-month period ended in the same month this year, average receivables climbed 16% year over year to $15.8 billion.

Net charge-offs came in at $84.1 million for August, while for the first eight months of the current year, net charge-offs were $657.1 million.

As a percentage of average receivables, net charge-offs for the month and the eight-month period ended July were 6.4% and 6.3%, respectively. The company had reported 4.1% and 5.0%, respectively for the same period last year.

Alliance Data stated that the net loss rates in the second half of 2017 will be lower than the number reported in the first half of 2017. Net loss rates are in line with the company’s full-year 2017 and 2018 consolidated guidance.

Delinquency rate deteriorated to 5.3% from 4.9% in the year-ago month.

Alliance Data has gained 0.9% in a year’s time, underperforming the industry’s increase of 25.5%. However, we expect both bottom and top-line growth along with an improving EBITDA as well as a solid capital position to help the stock to bounce back in the near term.

Card service segment of this Zacks Rank #3 (Hold) company has been performing well over the last several quarters. In fact the last quarter marked the 22nd straight quarter of double-digit revenue growth for Card Services. Alliance Data has been growing its private label card portfolio with a number of wins from both new and existing clients. Despite contract wins, management expects card receivable growth to moderate to 15% in 2017 from 20% in 2016. Nonetheless, new signings are likely to lead to $2 billion vintage in 2017.

Stocks to Consider

Some better-ranked stocks from the finance sector are Atlas Financial Holdings, Inc. (NASDAQ:AFH) , Markel Corporation (NYSE:MKL) and Mercury General Corporation (NYSE:MCY) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Atlas Financial Holdings engages in underwriting commercial automobile insurance policies in the United States. The company delivered positive surprises in two of the last four quarters with an average beat of 57.94%

Markel Corporation markets and underwrites specialty insurance products in the United States and internationally. The company delivered positive surprises in two of the last four quarters with an average beat of 21.06%.

Mercury General Corporation engages in writing personal automobile insurance in the United States. The company delivered positive surprises in three of the trailing four quarters with an average beat of 1.06%.

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