Reasons Why Investors Should Hold Alliance Data (ADS) Stock

Alliance Data Systems Corporation (NYSE:ADS) is well-poised for growth, owing to its strategic acquisitions and efficient capital deployment.

Banking on solid financial strength and flexibility, Alliance Data has pursued strategic acquisitions to boost its international expansion, consolidate its position in digital agency, boost the LoyaltyOne business, strengthen position in the digital marketing channels, expand its omni-channel distribution capabilities and widen presence in Brazil.

The company remains focused on returning value to its shareholders. In order to limit the adverse effect of foreign exchange, it uses share repurchases as a tool and focuses more on share buybacks than mergers and acquisitions. In July 2019, the board approved a new share buyback program of $1.1 billion. Its current dividend yield of 6.7% betters the industry average of 0.7%.

Alliance Data Systems’ return on equity is 44.1% in the trailing 12-month period, higher than the industry average of 38%. Return on equity is a profitability measure that identifies a company’s efficiency in utilizing shareholders’ funds.

The Zacks Consensus Estimate for 2020 and 2021 earnings per share is pegged at $20.49 and $22.71, indicating increase of nearly 22.1% and 10.8%, respectively from the year-ago reported figure. The expected long-term earnings growth rate is 12.10%. The stock also carries a favorable Value Score of A.

However, some factors that pose concerns include rising expenses as a result of higher cost of operations, and increased general and administrative expense. In 2019, operating expenses escalated 9.3%. Also, higher debt level increased the financial risk of the company.

Shares of this Zacks Rank #3 (Hold) stock have lost 78.2% in the past year against the industry’s increase of 4.5%. Nonetheless, we expect higher revenues, solid card services performance, strategic initiatives as well as a robust capital position to aid the company’s turnaround in the near term.

Stocks to Consider

Some better-ranked financial transaction service providers are EVO Payments, Inc. (NASDAQ:EVOP) , QIWI PLC (NASDAQ:QIWI) and Cardtronics PLC (NASDAQ:CATM) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

EVO Payments outpaced estimates in the last four quarters, the positive surprise being 42.04%, on average.

QIWI outpaced estimates in the last four quarters, the positive surprise being 72.30%, on average.

Cardtronics surpassed estimates in the last four quarters, the positive surprise being 27.21%, on average.

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