Alliance Data's Long-Term Deal - Analyst Blog

Alliance Data Systems Corporation (ADS) has inked a long-term deal with American Laser Centers to provide private label credit services designed to drive sales and enhance long-term customer loyalty.

Per the agreement, Alliance Data will offer private label credit services, including account activation, receivables funding, credit authorization, statement generation, remittance processing, customer service functions, marketing services and acquisition efforts to American Laser Centers. Through a range of credit and marketing tools, Alliance Data will also offer flexible financing options.

Alliance Data reported year-over-year revenue increase of 16% at its Private Label Services and Credit segment. It also projects at least a 5% year-over-year improvement in revenues in fourth-quarter 2010. We expect more of such contracts will generate higher revenues for the segment and help Alliance Data to achieve its projections.

Alliance Data reported a solid third quarter with adjusted earnings of $1.55 per share, beating the Zacks Consensus Estimate, the year-ago figure and the company's guidance.

During the third quarter conference call, Alliance Data guided adjusted earnings to be $1.40 per share in the fourth quarter of 2010. For full year 2010 and 2011, Alliance Data guided adjusted earnings of $5.70 per share and $6.75 per share, respectively.

The Zacks Consensus Estimate for fourth-quarter 2010 is $1.31 per share. For full years 2010 and 2011, the Zacks Consensus Estimates are, respectively, $5.24 per share and $6.31 per share.

The company remains poised to fare well in the upcoming quarters based on continued strong performance across its business units, sound financial position and focus on returning value to shareholders. However, an increasing debt burden keeps us cautious.

The quantitative Zacks #3 Rank (short-term Hold rating) for Alliance Data indicates no clear directional pressure on the stock over the near term.

Headquartered in Dallas, Texas, Alliance Data Systems Corporation, together with its subsidiaries, provides data-driven and transaction-based marketing and customer loyalty solutions primarily in the United States and Canada.