A SOTP Analysis Of Alliance Data Systems Supports $250 Share Price, Says Pacific Crest

Pacific Crest said a sum of the parts analysis, or SOTP, of Alliance Data Systems Corporation ADS supports its price target of $250, with 100 basis points of margin expansion would push it up to $263.

The price target of $250 implies a potential upside of 19 percent over Wednesday's close, while a $263 target implies about 26 percent upside.

The brokerage presented its SOTP analysis after ValueAct disclosing a 6.8 percent stake in ADS, a provider of data-driven marketing and loyalty solutions. ValueAct, an activist hedge fund, intends to have management and board discussions on ways to enhance shareholder value.

"We utilized five different segment EBITDA estimates and comparable valuations of eight companies to arrive at a weighted average 2017 EV/EBITDA of 9.6x, which supports our $250 price target," analyst Josh Beck wrote in a note.

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Relevant peers assessed include:

• Synchrony Financial SYF relative to the card services segment
• AOL, Inc. AOL
• Criteo SA (ADR) CRTO for the display and retargeting segments of Conversant
• AIMIA INC COM NPV GAPFF for the AIR MILES business

The analyst also assessed Sapient Corp SAPE, Acxiom Corporation ACXM, Omnicom Group Inc. OMC and Publicis Groupe SA (ADR) PUBGY for the core epsilon and brand loyalty segments.

Beck, who has an Overweight rating on the stock, noted that Alliance Data can still grow EPS in the low-teens as he believes the credit cycle is normalizing.

"We like the midterm risk/reward, though we acknowledge credit and execution debates are likely to remain unresolved in the near term," Beck added.

At time of writing, shares of Alliance Data Systems were up 1.37 percent on the day, trading at $212.29.