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Alliance Data Systems Corp ADS

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Morningstar’s Analysis

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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

Credit Results Power a Strong Quarter for Alliance Data Systems

Michael Miller Equity Analyst

Analyst Note

| Michael Miller |

No-moat Alliance Data Systems reported second-quarter earnings that benefited from the strong industrywide credit results. Recorded EPS of $4.07 comfortably beat FactSet consensus of $3.68. Earnings were supported by a $14 million loan-loss benefit, as a net charge-off rate of 5.1%, below normal for ADS, allowed the bank to release more than $200 million in reserves. ADS still has a reserve rate of 10.4%, leaving a little more room for reserve releases, though the majority should be behind us now. With a 30-day-plus delinquency rate of 3.3%, ADS will likely enjoy low charge-off rates until at least 2022. After incorporating these results into our model, we are increasing our fair value estimate for ADS to $84 from $79 as a result of lower projected net charge-offs in 2021 and 2022.

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Company Profile

Business Description

Formed by a combination of J.C. Penney’s credit card processing unit and The Limited’s credit card bank business, Alliance Data Systems is a provider of private label and co-branded credit cards, loyalty programs, and marketing services. The company’s most financially significant unit is its credit card business that partners with retailers to jointly market Alliance Data Systems’ credit cards to their customers. The company’s LoyaltyOne division operates the largest airline miles loyalty program in Canada and offers marketing services to grocery chains in Europe and Asia.

Contact
3075 Loyalty Circle
Columbus, OH, 43219
T +1 614 729-4000
Sector Financial Services
Industry Credit Services
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type Cyclical
Employees 8,000

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