Alliance Data Systems (ADS:NYS) Fundamental Valuation Report

Alliance Data Systems (ADS:NYS) Fundamental Valuation Report

Fundamental Valuation Report

Alliance Data Systems(ADS:NYS)

Financial Services:Credit Services

This Report was generated using the valuation tools available on StockCalc.com. For a free 30 day trial click here.

Close Price/Date
$121.87 (USD) 05/27/2021

Weighted Valuation
$134.33 (USD)

Overall Rating
Undervalued by 10.2%

Valuation Models Discounted Cash Flow: $144.49 (USD)
Multiples: $140.62 (USD)
Valuation Methods This company is:
Cash Flow: Undervalued on a Cash Flow Valuation
Comparable Company: Overvalued on a Comparable Valuation
Asset: Undervalued on an Asset Valuation
According to Analyst consensus at $134.33 this stock is Undervalued

Company Overview (ADS:NYS USD)

Price 121.87
Range 118.01 – 122.38
52 week 39.90 – 124.87
Open 118.77
Vol / Avg. 953039/845170
Mkt cap 6.06B
P/E 10.81
Div/yield 1.26/0.01
EPS 4.46
Shares 49.72M
Beta 2.62

Company Description

Formed by a combination of J.C. Penney’s credit card processing unit and The Limited’s credit card bank business, Alliance Data Systems is a provider of private label and co-branded credit cards, loyalty programs, and marketing services. The company’s most financially significant unit is its credit card business that partners with retailers to jointly market Alliance Data Systems’ credit cards to their customers. The company’s LoyaltyOne division operates the largest airline miles loyalty program in Canada and offers marketing services to grocery chains in Europe and Asia.

Valuation Details

 We have up to 6 valuation points for each company. Details are at the bottom of the report.

Discounted Cash Flow and Sensitivity Analysis for ADS:NYS

Using a discounted cash flow model we generated an intrinsic value of $144.49 (USD) for ADS:NYS

Sensitivity Analysis

(showing how changes in the input variables impact the DCF calculation)

ADS:NYS Current Values Valuation If Dropped * Valuation If Raised *
Calculated Value: $144.49 1% 5% 1% 5%
WACC (or Ke) 4.59 $251.46 $75.80
Terminal Growth Rate 0.00 $81.37 $242.77
Tax Rate 0.25 $172.57 $116.40
Cash Flow 1,294,336,165 $123.48 $165.50
Capital Expenditures 0 $144.49 $144.49
Long Term Debt 11,725,300,000 $156.28 $132.70

* Changes are absolute: ex WACC from 8% to 7%

Comparables Model

Using similar companies and price based ratios we generated a valuation of $90.40 (USD) for ADS:NYS. We also generated a valuation of $122.16 (USD) using other metrics and comparables.
The comparable companies were Goldman Sachs BDC (GSBD:NYS), LendingClub (LC:NYS), Navient (NAVI:NAS), Enova International (ENVA:NYS) and OneMain Holdings (OMF:NYS).

Company ADS:NYS End Date Value
Earnings/Share $9.57 (USD)
Book Value/Share $35.48 (USD)
Sales/Share $87.24 (USD)
Cash Flow/Share $37.74 (USD)
EBITDA/Share $11.94 (USD)
Price Based on Comps Adjustment Factor (%)
$41.33 (USD) 12.0
$57.90 (USD) 0.0
$273.05 (USD) -36.4
($261.88) (USD) -31.5
$37.44 (USD) -22.9
ADS:NYS Ratios Used Average Values GSBD:NYS LC:NYS NAVI:NAS ENVA:NYS OMF:NYS
10.81 PE Ratio 4.32 3.57 0.00 3.93 2.78 6.99
3.43 PB Ratio 1.63 1.21 2.02 1.21 1.38 2.34
1.40 PS Ratio 3.13 5.17 5.55 1.64 1.29 2.00
3.23 PCF Ratio 3.24 3.63 2.08 4.91 2.09 3.52
21.30 EV to EBITDA 3.13 0.00 0.00 0.00 3.13 0.00

Multiples

Using a multiples approach we generated a valuation of  $140.62 (USD) for ADS:NYS

Company ADS:NYS End Date Value
Earnings/Share $9.57 (USD)
Book Value/Share $35.48 (USD)
Sales/Share $87.24 (USD)
Cash Flow/Share $37.74 (USD)
EBITDA/Share $11.94 (USD)
Price Based on Comps Adjustment Factor
$134.02 (USD) 0
$177.81 (USD) 0
$121.16 (USD) 0
$145.84 (USD) 0
$124.29 (USD) 0
Ratios Ratio Average
PE Ratio 14.00
PB Ratio 5.01
PS Ratio 1.39
PCF Ratio 3.86
EV to EBITDA 10.41

Adjusted Book Value versus Historical Price to Book

The average the Price to Book ratio for  ADS:NYS for the last 10 years was  5.95

We ran the Adjusted Book Value for  ADS:NYS and generated a book value of  $35.50 (USD)
By multiplying these we get an adjusted valuation of  $211.08 (USD)

Analyst Data

In the Stockcalc database there are 3 analysts that provide a valuation for ADS:NYS. The 3 analysts have a concensus valuation for ADS:NYS for 2021 of $134.33 (USD).

ADS:NYS Alliance Data Systems

Analyst Recommendation
Buy Hold Sell Rating
(of 5)
Guidance As Of
4 0 0 4.4000 Outperform 2021-5-26

Current Price: 121.87 USD

Analyst Consensus
USD Millions 2021 2022 2023
Mean EPS 12.88 13.84 17.60
# EPS Analysts 5 5 1
Mean Revenue 4,134.00 4,509.10 4,929.30
# Revenue Analysts 4 4 1
Mean Target Price 134.33
Mean Cash Flow 20.16 19.76 21.95
Mean EBITDA 1,122.00 1,184.00
Mean Net Income 674.10 665.20 837.30
Mean Debt Outstanding
Mean Tax Rate 26.00 25.00
Mean Growth Rate 12.25
Mean Capital Expenditure

Explanation of Valuation Models

We have up to 6 valuation points for each company in the database.

The Discounted Cash Flow (DCF) valuation is a cash flow model where cash flow projections are discounted back to the present to calculate value per share. DCF is a common valuation technique especially for companies undergoing irregular cash flows such as resource companies (mining, forestry, oil and gas) going though price cycles or smaller companies about to generate cash flow (junior exploration companies, junior pharma, technology firms…).

The Price Comparables valuation is the result of valuing the company we are looking at on the basis of ratios from selected comparable companies: Price to Earnings, Price to Book, Price to Sales, Price to Cash Flow, Enterprise Value (EV) to EBITDA. Each of these ratios for the selected comparable companies are averaged and multiplied by the values for the company we are interested in to calculate a value per share for our selected company.

We have included the Other Comparables as a way to value companies that cannot be valued using Earnings based ratios. This technique is very useful for companies still experiencing negative cash flows such as mining exploration firms. We use Cash/Share, Book Value/Share, MarketCap, 1 Year Return, NetPPE as the ratios here. Each of these ratios for the selected comparable companies are averaged and multiplied by the values for the company we are interested in to calculate a value per share for our selected company.

Multiples are similar to Price comparables where we look at current or historic ratios for the company in question to assess what it should be worth today based on those historic ratios. We use the same 5 ratios as in the price comparables and value the company with its historic averages.

With Adjusted Book Value (ABV) we calculate the book value per share for the company based on its balance sheet and multiply that book value per share by its historical price to book ratio to calculate a value per share.

If we have Analyst coverage for the company we use the consensus target price here.

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