Thursday, July 20, 2006

Color on Alliance Data (NYSE:ADS)'s results

Alliance Data (NYSE:ADS) posted strong results last night and we have several firms issuing very positive commentary:

- JP Morgan notes ADS posted really strong 2Q results of $491M/$0.77, a full $0.11 ahead of firm's above consensus Cash EPS estimate of $0.66 (ex stock comp), representing 32% and 57% revenue and Cash EPS growth, respectively. Nearly half of upside attributed to 'active' execution rather than 'passive' macro trends.

Firm is raising their estimates: FY06 and FY07 Cash EPS estimates (ex. stock comp) to $2.91 and $3.16, respectively, (previously $2.87 and $3.05). FY06 guidance up $0.15, reflecting the 2Q beat and appears conservative @ $2.75+.

Management was bullish on the call and addressed our concerns that 1H06 charge-offs would create a tougher compare in '07 by sticking with its LT 18% EPS growth view for FY07, implying ~$3.25. Firm is assuming a lower FY07 target to buffer against the risk of a much weaker consumer and to leave room for upside.

JP Morgan maintains their Overwreight rating on strong underlying business momentum and beatable FY06 guidance. They believe shares can reach new highs on the beat and bullish tone.

- Merrill Lynch notes that even though the Street was clearly expecting some upside, they think ADS still significantly beat even the most bullish expectations delivering 2Q06 cash EPS of $0.77 (+57% y/y) ahead of firm's $0.65 estimate and the $0.63 consensus estimate. Key operating metrics across all of ADS' businesses were ahead of our expectations. Importantly, ADS also suggested that the company anticipates at least 18% cash EPS growth in '07. Merrill thinks this demonstrates the high level of visibility in ADS' business model and supports the argument that the stock should trade closer to transaction processing peers, rather than at a sharp discount. Reits Buy rating.

- Bear Stearns is raising their 06 cash EPS estimate to $2.80 from $2.70 and 07 cash EPS estimate to $3.30 from $3.20. Thinks the company's guidance for 3Q06 and the full year is conservative. Despite more difficult comps in 07, the company is confident that it can maintain the traditional growth model of 12%/15%/18%.

ADS is seeing no signs of a consumer slowdown nor any deterioration in credit quality. The company's pipeline of potential business remains strong. Bear maintain an Outperform on the shares of ADS. ADS has consistently exceeded expectations and they expect the trend to continue. Firm is introducing a year end 07 price target of $75 (based on 10-11x preliminary 08 EBITDA and operating EBITDA estimates).

Notablecalls: Notice how JP Morgan suggests ADS stock should reach new highs on the beat and bullish tone? The current high (07/03/06) is almost 7 points higher. One to watch today and in the coming days.

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