J.P Morgan Trims Estimates On Alliance Data; Remains Neutral

Alliance Data Systems ADS reported 4Q10 core EPS of $1.56, versus JPM/Street estimates of $1.44/$1.41, respectively. Upside versus JPM's estimates was driven by a lower tax rate and lower securitized funding costs. Management reiterated FY11 Core EPS guidance of at least $6.75 and highlighted the pending national roll-out of its Brazilian coalition loyalty program and the private label deal pipeline. J.P Morgan is trimming estimates and maintaining its $78 Dec 2011 price target. It appears securitized funding costs benefited from a step down in swaps rates. Management suggested swap rates would increase modestly from 4Q10 levels, but it is unclear exactly how much of the 4Q benefit is sustainable. This is a key watch item and could be a source of upside to FY11 estimates. J.P Morgan is tweaking estimates to reflect slightly better Epsilon trends and funding costs, which are being offset by a higher share count assumption. It now expects Core EPS of $6.77, $7.65 and $8.65 in '11, '12 and '13, respectively, down from $6.86, $7.74, and $8.87. ADS closed Tuesday at $72.26