Why Alliance Data is a Good Investment Pick - Analyst Blog

On Jun 21, Zacks Investment Research upgraded Alliance Data Systems Corporation ADS to a Zacks Rank #2 (Buy).

Why the Upgrade?

Alliance Data has been witnessing rising earnings estimates on the back of strong first-quarter 2014 results and continued signing of long-term deals. Moreover, this financial transaction service provider delivered positive earnings surprises in three of the last four quarters, with an average beat of 2.18%.

Riding on the strength of solid performance across all its segments, first-quarter earnings at Alliance Data topped the Zacks Consensus Estimate by 1.9% and were 12% higher than the year-ago figure. Revenues exceeded the $1 billion mark for the sixth time.

The company's dotz coalition loyalty program in Brazil is well underway. The program, which has already spread to 10 markets, is likely to reach three more this year.

Alliance Data has been successfully strengthening its balance sheet. While cash balance increased, leverage ratios also witnessed an improvement.

Adding to the company's strengths is the $400 million share repurchase program under its authorization. Last quarter, Alliance Data spent $115 million on share buyback.

The company inked long-term deals with Loblaw Companies Limited, Moneris Solutions Corporation and Eddie Bauer.  Revenue contributions from these deals beef up the company's top line. Banking on the strength of its operational performance, Alliance Data raised its 2014 operating earnings per share guidance to $12.25 from $12.20, translating to a 22% year-over-year increase. The Zacks Consensus Estimate of $11.64 for the full year falls shy, but represents a 23% improvement over 2013.

Strong performance prompted upward revisions in Zacks Consensus Estimate for 2015, which moved up 0.2% to $11.53 over the last 60 days. This also represents a year-over-year improvement of 16.5%. The expected long-term growth rate for the stock is 14.8%.

Other Stocks to Consider

Investors interested in the insurance industry could also consider stocks like Fidelity National Information Services, Inc. FIS, VeriFone Systems, Inc. PAY and ZOOM Technologies, Inc. ZOOM. All these stocks sport a Zacks Rank #1 (Strong Buy).