Upgrades Buoy ADS

The credit card processor's shares were jumping after analysts warmed to a rosy forecast.
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Alliance Data Systems

(ADS) - Get Report

surged more than 17% Thursday after reporting strong revenue growth and a rosy 2008 outlook, which prompted several analysts to raise their ratings on the stock.

Analysts from Bear Stearns, JMP Securities, SunTrust Robinson Humphrey and Wachovia all upgraded the stock based on Alliance Data's results reported after Wednesday's close. Total fourth-quarter revenue increased 15% to $602 million, an all-time record for Alliance, compared to $524 million for the fourth quarter of 2006.

Net income per share decreased to 42 cents per diluted share compared to 48 cents per diluted share for the fourth quarter of 2006. Alliance's profit shrank 14% for the quarter due to higher expenses, but the results met the estimates of analysts surveyed by Thomson Financial.

The company also said it expected a profit of $4.30 per share in 2008, above the $4.26 mean estimate of analysts polled by Thomson Financial.

"While funding spreads have widened, the significant drop in the benchmark LIBOR and Treasury rates is outpacing higher spreads. As a result, at today's rates and anticipated spreads the company estimates that it will realize at least $15 million in savings from lower funding costs," Alliance noted in its press release.

The stock climbed $7.42 to $50.12, breaking a significant downtrend in the share price. Alliance had been trading down as investors became concerned that a buyout deal with the

Blackstone Group

(BX) - Get Report

might not go through, losing as much as 43% of its value.

In an offensive move, the Dallas-based credit card processor filed a suit Wednesday against Blackstone to compel the private-equity firm to complete its $6.4 billion buyout. As recently as Friday, Blackstone stated it didn't think it could meet the regulatory requirements and that the deal was in jeopardy. The Office of the Comptroller of Currency asked Blackstone to offer $400 million in capital backstop for Alliance. Blackstone says it couldn't satisfy that request; Alliance disagrees and believes the OCC's stance is not unreasonable.

Alliance plans to hold a Q&A session within 45 days to update investors on the proposed merger.

"Despite market turmoil and concerns about the macro-economic environment, the company expects its solid track record to continue in 2008," CEO Mike Parks said in a statement. "The increasing trend of marketing dollars shifting to highly targeted, full-scale loyalty and marketing programs with measurable results gives the company confidence that 2008 will be another year of outstanding performance."