As for the current valuation I have no clue... On the one hand it looks cheap, but at the same time there is a myriad of reasons why the current price could be the right one (e.g. more reserves to come for old portfolios, lower IRRs for new ones, already high niche real penetration/ market share, further deterioration of retail customers, etc).
I'm still trying to flesh out the bear case. On the last call an analyst triangulated that they took at 60m hit to their portfolios held for sale (2b). I'd assume they're getting rid of their worst clients/portfolios, but even if one assumed all their receivables were impaired, that would be a 600m hit. Hardly threatening. I'd also expect their costs to fund their receivables portfolios would increase - I've seen nothing in their filings to suggest so.
We'll see about ROE, despite a bad performance and little credibility, they committed to +30 pct. ROE. Their overoptimistic ways means we shouldn't take that at face value, but they'd be stupid as hell when they could kitchen sink (but hey, they seem stupid as hell communication wise, so hardly would be surprising).
Anyway, I'd say a decline in ROE is pretty much baked in. So I think we'd be good at these levels. So do they have a viable future - are their services needed?
Ulta Beauty has 33m loyalty members, and their members are much more valuable than non-members (last Ulta investor day has some interesting info), so it does seem like the value they create for their customers is anything but trivial. If it's all just about loose credit and about to unravel, I've somewhat hedged my bet by going long Ulta. 
Perhaps one should go long Lands End as well, since their new agreement should be a meaningful contributor to sales going forward.
Let me give you a few less optimistic points to consider - don't believe all of these but I do think a lot are plausible.. in general the thesis can be summed up as don't believe management or at least don't give these guys the benefit of the doubt...
1) held for sale portfolio - why assume they are their worst portfolios? They used to say it was M&A / bankruptcies.. now it's just ppl who weren't focused on card.. maybe it's struggling retailers we signed that we shouldn't have renewed..or had to renew for strategic reasons. Also if they have a shitty portfolio that would be a pain to sell they won't.. they know ppl look at this.. the fact that they are taking writedowns suggests they were way too optimistic in valuing them. Financial companies taking writedowns rarely have one bad mark.. it's usually a series of bad marks. Maybe ONLY these portfolios had bad marks.. maybe more who knows.
2) growth - what's the growth rate on receivables (not active receivables.. just receivables on balance sheet) in the next 3-5 yrs? Is it single digits as the new team said or is it mid teens that the old team said was likely. What changed to basically halve it.. off a depressed base that has a ton of 'spooling' baked in..
3) why does their ROE have to be 30% vs SYF at 25% - decompose the individual line items and you will see it's all revenue driven. They actually do worse on credit and Opex efficiency on a fully loaded baisis.. so what gives them the right to earn higher revenue yields. Is it as the management team claims there is less competition cause they play in small retailers the big boys don't want or is it the other claim of better marketing... Seems dubious to me. Why wouldn't the bigger retailers want better marketing if ADS could deliver that? And seeing some of the subscale crap SYF has in the payment solutions and carecrdit them not being interested in small retailers seems like a maybe at best to me. More likely it's the lower balances on ADS accts which drives yields as the fees (which are typically fixed $) are a bigger part of the yield. This theory has the nice benefit of also being consistent with their worse credit.. so are 30 percent ROEs guaranteed as loan sizes increase ? I don't know but I question if the bulls are prepared for consistent ROEs below 30%..
4) nearterm guidance is going lower not higher (lower interest rates). yes yes it's bullshit and we value investors care about intrinsic value. But stocks go down when guidance is lowered or actual results miss guidance
5) CECL - bears expect either the actual results will be worse than guidance on day 1 or longer term. Lots of reasons for this but two are - their competitors are not stupid and all pointed to much bigger reserve building and some of ADS new clients / categories clearly have longer loan lifes than their old so the portfolio shift will drive day2 reserves higher than ppl are assuming.
6) relatedly they keep saying the new categories should perform the same as their historic in terms of credit but a jewelery or furniture deferred interest loan may not.. especially in a downturn. It's certainly a longer life loan which even they acknowledge.
7) loyaltyone - who is the buyer? Why do they want it.. other than PE that is.. since the cash flow profile is decent.. but PE firms aren't in the business of paying high multiples for a business with limited growth and some regulatory risk from a forced seller. Their execution on epsilon reduces confidence
their non-gaap metrics are crap and on a gaap basis they aren't all that much cheaper than syf.. (well at least they didn't used to be)
9) competition for plcc is increasing - whether it's bnpl, non-plcc rewards or Just better gpcc rewards. The fact is plcc purchase volume as an industry has been anemic for the last two yrs. And the growth in. Non-card related rewards programs reduce the value prop of card programs. Are Ulta's 33M members going to go get Ulta cards? Will Ulta reward those that dont to a lesser degree - yes but will it matter? .
10) well I don't have one of the top of my head but 10 is a nice number for a list - so let's just go with cyclicall business with low quality management whose biggest customer is struggling so y would own late in the credit cycle. Can just buy cheaper if credit event occurs or if they work through issues.. will have lots of time to buy don't need to bottom tick. Sell now buy once fixed or credit overhang goes.
Who knows though. Maybe they did kitchen sink with new managemebt coming in and things will get better from here. Don't really feel strongly one way or another. But think dismissing the bears who have been very very right for the last few quarters - on both trajectory of business and stock price - is a mistake.
