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TheStreet Open House

Why Alliance Data (ADS) Is Gaining Today

NEW YORK (TheStreet) -- Alliance Data (ADS) shares gained 9.9% to $257.49 Thursday after posting quarterly results that beat on earnings and revenue.

In its fourth-quarter, Alliance Data reported earnings of $2.39 a share. The Capital IQ Consensus Estimate called for earnings of $2.33 a share, meaning the company beat estimates by 6 cents. Revenue rose 17.4% to $1.14 billion in the quarter, slightly beating analyst estimates of $1.13 billion.

For the first-quarter Alliance Data expects earnings of about $2.70 a share, and about $1.25 billion in revenue, compared to analyst estimates of $2.99 a share in earnings, and $1.17 billion in revenue.

For the full year 2014 the company expects earnings of $12.20 a share, compared to analyst expectations of $12.24 a share. Alliance Data expects revenue of about $5.14 billion in 2014, while analysts estimate $4.81 billion.

Must read: Alliance Data Systems Corporation (ADS) Is Today's Unusual Social Activity Stock

TheStreet Ratings team rates ALLIANCE DATA SYSTEMS CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate ALLIANCE DATA SYSTEMS CORP (ADS) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, growth in earnings per share, increase in net income, solid stock price performance and expanding profit margins. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 18.4%. Since the same quarter one year prior, revenues rose by 20.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • ALLIANCE DATA SYSTEMS CORP has improved earnings per share by 9.2% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, ALLIANCE DATA SYSTEMS CORP increased its bottom line by earning $6.60 versus $5.46 in the prior year. This year, the market expects an improvement in earnings ($9.97 versus $6.60).
  • The net income growth from the same quarter one year ago has exceeded that of the IT Services industry average, but is less than that of the S&P 500. The net income increased by 11.2% when compared to the same quarter one year prior, going from $119.55 million to $132.88 million.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 62.23% over the past year, a rise that has exceeded that of the S&P 500 Index. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • 42.69% is the gross profit margin for ALLIANCE DATA SYSTEMS CORP which we consider to be strong. Regardless of ADS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ADS's net profit margin of 12.11% is significantly lower than the industry average.

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