Alliance Data's Epsilon Email System Hacked; Risk to Alliance is Low (ADS)

J.P. Morgan recently released a report detailing what many people already know: this weekend millions of people were notified via email that their names and contact information had been acquired illegally by hackers of Alliance Data's ADS permission-based email system within the Epsilon division. Names and email addresses were taken, but no personal or financial details were obtained. As a result, those who were contacted about the breach were told to expect and be cautious of an outpouring of spam email. Affected people include customers of Citi, JPMorgan Chase, Capital One, New York & Co, McKinsey, Walgreen, Kroger, TiVo, and Best Buy, among others. The report notes that ADS believes its vulnerability to potential litigation is low, and that the company enjoys the added security of sufficient insurance to cover such damages. JPM analysts view the real risk as a loss of clients or longer selling cycles for new business. Addressing this concern, ADS has further strengthened its firewall and invited some key clients to see for themselves through examinations of its facilities. As provided by the report, Epsilon, which accounts respectively for 22% and 18% of ADS revenue and EBITDA, is the fastest-growing segment of the company. ADS is given a Neutral rating and currently trades at $82.35.