Why Is Alliance Data (ADS) Down 4.3% Since Its Last Earnings Report?

It has been about a month since the last earnings report for Alliance Data Systems Corporation (NYSE:ADS) . Shares have lost about 4.3% in that time frame, underperforming the market.

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

Alliance Data Q4 Earnings Top Estimates, Ups Dividend

Alliance Data Systems Corporation’s operating earnings of $6.26 per share in the fourth quarter of 2017 surpassed the Zacks Consensus Estimate of $5.00. The bottom line improved 34% year over year.

Card Service and LoyaltyOne segment posted solid results. Expenses declined owing to lower operating costs fueling operating income growth.

Behind the Headlines

Alliance Data’s revenues came in at $2.11 billion, up 15% year over year. The top line missed the Zacks Consensus Estimate of $2.15 billion.

Operating expenses slipped 0.3% year over year to $1.6 billion, primarily on the back of lower cost of operations. Operating income more than doubled year over year to $462.7 million.

Adjusted EBITDA inched up 1% year over year to $514 million.

Full-Year Highlights

Operating earnings of $18.33 per share for 2017 topped the Zacks Consensus Estimate of $18.08. The bottom line rose 8% over 2016.

Revenues of $7.22 billion missed the Zacks Consensus Estimate of $7.76 billion. The top line gained 8% year over year.

Adjusted EBITDA climbed 3% year over year to $1.94 billion.

AIR MILES reached profitability marks.

Segment Update

LoyaltyOne: Revenues totaled $385 million, surging 56% year over year. Adjusted EBITDA improved 9% to $80 million. AIR MILES’ reward miles issued decreased 5% while AIR MILES’ reward miles redeemed slumped 56%.

Epsilon: Revenues were $640 million in the quarter, up 7% year over year. Adjusted EBITDA decreased 2% year over year to $159 million, attributable to increase in incentive compensation.

Card Services: Revenues came in at $1.09 billion, up 10% year over year. Adjusted EBITDA was $311 million, up 4% year over year.

Financial Update

As of Dec 31, 2017, cash and cash equivalents were $4.2 billion compared with $1.8 billion as of Dec 31, 2016.

At the end of 2017, debt rose 8.5% from 2016-end to $6.1 billion.

Capital expenditure at Alliance Data increased 8.7% year over year to $176.6 million in 2017.

Dividend Update

The board of directors approved a 10% hike in quarterly dividend to 57 cents per share.

2018 Guidance

The company expects core EPS for the current year between $22.50 and $23.00, up 16-19% over 2017.

Revenues lowered to $8.35 billion from $8.7 billion guided earlier. The top line represents an 8% improvement over 2017.

Positive impact of tax reform, net of initiatives, is estimated between $1.00 and $1.50 per share.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months. In the past month, the consensus estimate has shifted by 5.2% due to these changes.

Alliance Data Systems Corporation Price and Consensus

Alliance Data Systems Corporation Price and Consensus | Alliance Data Systems Corporation Quote

VGM Scores

Currently, ADS has a nice Growth Score of B, a grade with the same score on the momentum front. The stock was also allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value, momentum and growth investors.

Outlook

ADS has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.