Why Is Alliance Data (ADS) Down 19.9% Since Last Earnings Report?

It has been about a month since the last earnings report for Alliance Data Systems (ADS). Shares have lost about 19.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Alliance Data due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Alliance Data Q4 Earnings & Revenues Miss Estimates

Alliance Data Systems' fourth-quarter 2019 operating earnings of $4.12 per share missed the Zacks Consensus Estimate by 0.9%. The bottom line declined nearly 29% year over year.

Earnings were weighed down by restructuring and strategic transaction costs.

Shares of the company lost 0.61% in the pre-market trading session owing to lower-than- expected results.

Behind the Headlines

Alliance Data reported total revenues of $1.46 billion, flat year over year. The top line missed the Zacks Consensus Estimate by 2.7%.

Operating expenses increased 20.5% year over year to $1.15 billion. Adjusted EBITDA (net of funding costs) declined 39% year over year to $278 million.

Full Year Results

The company reported earnings per share of $16.77, down 14% year over year. Revenues of $5.58 billion declined 2% year over year.

Segment Update

Card Services revenues were $1.13 billion, flat year over year. Adjusted EBITDA was $209.6 million, down 51% year over year.

LoyaltyOne revenues totaled $332 million, flat year over year. Adjusted EBITDA increased 19% to $80.3 million. AIR MILES reward miles issued was up 1% year over year.

The company incurred $33 million in restructuring and other charges.

Financial Update

As of Dec 31, 2019, cash and cash equivalents was $3.9 billion, up 1.5% from Dec 31, 2018-level.

At quarter end, debt level dropped 50.2% from 2018-end to $2.85 billion.

For the full year, the company generated cash from operations of $1.2 billion, down 24.4% year over year. Capital expenditure at Alliance Data declined 28.8% year over year to $142.3 million in the same period.

2020 Guidance

Alliance Data estimates core EPS of $20.5, indicating growth of 22% year over year. Revenues are expected to remain unchanged year over year at $5.6 billion.

Business Update

Alliance Data shifted its client base in Card Services toward faster growing companies and verticals by selling approximately $2.1 billion in non-strategic receivables. It divested Epsilon and Precima units. The company extended the debt maturity ladder providing liquidity that can be used to re-invest in the business. A seasoned industry veteran, Ralph Andretta, was hired from Citigroup (NYSE:C) to lead the company.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

At this time, Alliance Data has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Alliance Data has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.