Why Morgan Stanley's Bullish On Alliance Data Systems

Alliance Data Systems Corporation’s ADS stock prices in “too negative an outcome” in the ongoing transition into a pure-play card company, according to Morgan Stanley.

The Alliance Data Systems Analyst: Jeffrey Adelson initiated coverage of Alliance Data Systems with an Overweight rating and $67 price target. 

The Alliance Data Systems Thesis: The company’s stock has lost 57% year-to-date, which is 35 percentage points worse than peers and 67 percentage points worse than the broader market, Adelson said in the Tuesday initiation note. 

“New management has a track record in consumer finance, understand the need to refocus on retail card and drive sustainable growth,” the analyst said. 

The market is overestimating the company’s credit risk, while underestimating its shift away from specialty retailers, he said. 

“After a shutdown-driven drop in revenues in 2Q, we believe a robust recovery in card purchase volumes is already underway. ADS is levered to a V-shaped recovery in consumer spending, which our economists estimate will bounce 8% in 2021e,” Adelson said.

ADS Price Action: Shares of Alliance Data Systems were trading 3.3% higher to $50.10 ahead of the close Tuesday.