RiverPark Funds recently published its Long/Short Opportunity Fund Q4 Investor Letter in which the fund discussed Alliance Data Systems Corporation (NYSE:ADS) and other companies. We’ve already covered Dollar Tree, Amazon.com, and Charles Schwab. In this article, we’ll take a look at RiverPark’s thoughts on Alliance Data Systems, which provides data-driven marketing and loyalty services.
Here is what RiverPark said in the letter about the company:
Alliance Data Systems (Long): ADS also had a strong quarter as credit delinquencies, which have improved throughout 2017, came in essentially flat year-over-year for November (a marked improvement from late 2016 and the earlier months of 2017). This continues to suggest that ADS is nearing a positive earnings inflection point in 2018 as three years of rising charge-offs (which have pressured earnings comparisons despite strong client growth) begin to ease.
Management continues to guide towards 19% earnings growth in 2018 (on 12% revenue growth) as credit losses normalize, the company’s core lending business continues to grow and the company’s advertising and rewards divisions rebound (as new programs ramp up). Tax reform will additionally boost the earnings growth rate. Investor caution has resulted in ADS shares trading at 11x next year’s pre-tax reform EPS, a significant discount to both the company’s long-term growth rate (over the past 10 years the company has generated revenue and earnings compounded growth rates of 13% and 17%, respectively) and the Russell 1000 Growth Total Return Index’s forward multiple of 20x. As the company returns to more normalized earnings growth in 2018, we believe that this earnings growth coupled with multiple expansion can be a powerful combination to drive ADS’s shares higher.
Alliance Data Systems Corporation (NYSE:ADS) is a provider of data-driven marketing and loyalty solutions. The company offers customer loyalty programs, database marketing services, end-to-end marketing services, analytics and creative services, direct marketing services, and private label and co-brand retail credit card programs.
For the year ended December 31, Alliance Data Systems reported revenues of $7.72 billion, up from $7.14 billion for 2016. It had a profit $789 million, or $14.10 earnings per share, versus $518 million, or $7.34 per share, for the previous year.
Shares of the company have dropped 3.56% since the beginning of the year. Over the last 12 months, the stock has gained 5.64%. ADS has an average rating of ‘OVERWEIGHT’ and an average target price of $286.17 from 29 analysts polled by FactSet. On Friday, the stock was trading at $244.99 in the afternoon trading session.
Meanwhile, in addition to RiverPark, Alliance Data Systems Corporation (NYSE:ADS) is also a favorite stock among other active managers and hedge funds such as Point72 Asset Management which upped its stake in the company by 385% during the fourth quarter. Jeffrey Ubben’s ValueAct Capital reported holdings 5.88 million ADS shares as of the end of the last year. In Insider Monkey’s database, there were 41 hedge funds with positions in the company as of the end of the third quarter of the last year.