ADS - Alliance Data Systems

[vince]

Ulta beauty is another company with a similar model as Sephora, take a look at the stock after hours

[LowIQinvestor]

WOW, this is better than I would have thought:

For 2 months ended February 28, 2019
Year over year change in active clients - average receivables + 12%

Good client additions lately:
https://www.marketwatch.com/press-release/sephora-announces-launch-of-first-credit-card-2019-03-14

[LowIQinvestor]

Don't forget that CEO said it is very likely that Epsilon sale will be announced in Q1 19
and then large buyback ---  at 7 PE to boot!

Adding to ADS

[kab60]

We'll see. It wouldn't be the first time he was being too optimistic.

[LowIQinvestor]

Clearly, Mr Market agrees with you right now given the low valuation.

Think we get some news about Epsilon in next couple of weeks. (per mgmt commentary in Q4 )

If it is sold for a decent price, ADS goes much much higher!

"low risk, high uncertainty"

[kab60]

Clearly, Mr Market agrees with you right now given the low valuation.

Think we get some news about Epsilon in next couple of weeks. (per mgmt commentary in Q4 )

If it is sold for a decent price, ADS goes much much higher!

"low risk, high uncertainty"

I have a large stake, so I obviously hope for a quick sale at a nice price, but I wouldn't expect the stock to go much higher. Now I'm not great at reading the market, but I think it's worried about the card biz 10 years into an upcycle, and thus I'm not sure selling Epsilon and doubling down on cards will change that narrative. I like the move, I just don't expect anything to happen short term (and that's all for the better if they'll go aggressive on buybacks).

[vince]

Clearly, Mr Market agrees with you right now given the low valuation.

Think we get some news about Epsilon in next couple of weeks. (per mgmt commentary in Q4 )

If it is sold for a decent price, ADS goes much much higher!

"low risk, high uncertainty"

I have a large stake, so I obviously hope for a quick sale at a nice price, but I wouldn't expect the stock to go much higher. Now I'm not great at reading the market, but I think it's worried about the card biz 10 years into an upcycle, and thus I'm not sure selling Epsilon and doubling down on cards will change that narrative. I like the move, I just don't expect anything to happen short term (and that's all for the better if they'll go aggressive on buybacks).

I agree with Kab....I dont think we move substantially higher until market is confident that mgmt is right about the card business.  The market has lost faith in what the ceo claims.  And I don't blame it.

[abitofvalue]

Agree with this.. there may be a slight pop but I don't see that being sustainable. Suspect they will also sell loyaltyone over the next yr.

However, working through a break-up of ADS... Looking only at card business a yr out. I can't get to GAAP EPS much above $25-$26. This assumes they sell epsilon for $5b+ and loyalty one for $1.7b. at $25 EPS if you put a market credit card multiple 7-9x on ads you get $172-$225.  Note that COF and DFS with arguably better perceived management trade at <8x currently.

[vince]

Agree with this.. there may be a slight pop but I don't see that being sustainable. Suspect they will also sell loyaltyone over the next yr.

However, working through a break-up of ADS... Looking only at card business a yr out. I can't get to GAAP EPS much above $25-$26. This assumes they sell epsilon for $5b+ and loyalty one for $1.7b. at $25 EPS if you put a market credit card multiple 7-9x on ads you get $172-$225.  Note that COF and DFS with arguably better perceived management trade at <8x currently.

what are u doing with the proceeds from the 2 sales?

[abitofvalue]

Buyback with epsilon (ex-$1.9b debt repayment as guided) And then debt repayment with loyalty one.  They'll need to do something  about Corp debt if they sell loyalty one..  I basically eliminate it with sale proceeds + cash flows.

How much EPS are you able to get? I feel like I am being generous on growth and credit and still don't see how it gets meaningfully higher.  Doubt the stock works if GAAP EPS can't get close to $30.