Alliance Data Systems (ADS:NYS) Fundamental Valuation Report


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Alliance Data Systems $242.09 (USD) Close Price as of 23/02/2018

Based on the analysis conducted in this report, Alliance Data Systems, (ADS:NYS) is found to be  Fairly valued to slightly Undervalued.

Company Alliance Data Systems
Symbol:Exchange ADS:NYS
Industry Financial Services:Credit Services
Close Price/Date $242.09 (USD) 23/02/2018
Weighted Average Valuation $250.82 (USD)
Summary ADS:NYS is found to be  Fairly valued to slightly Undervalued by 3.6% using the 3 valuation models shown below.
Valuation Models Used Analyst Consensus: $272.57 (USD)
(in order of importance) Adjusted Book Value: $224.13 (USD)
Discounted Cash Flow: $238.96 (USD)
Valuation Methods Analysis This company is:
Cash Flow Basis: Fairly valued on a Cash Flow Valuation basis
Comparable Company Basis: Undervalued on a Comparable Valuation basis
Asset Basis: Overvalued on an Asset Valuation basis

Valuation Details

Alliance Data Systems Valuations

Summary chart

 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 $238.96 (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: $238.96 1% 5% 1% 5%
WACC (or Ke) 8.14 $349.87 $164.21
Terminal Growth Rate 3.00 $170.71 $340.19
Tax Rate 0.38 $279.51 $198.40
Cash Flow 2,554,915,000 $213.88 $264.03
Capital Expenditures 0 $238.96 $238.96
Long Term Debt 11,725,300,000 $249.57 $228.34

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

Comparables Model

Using similar companies and price based ratios we generated a valuation of $300.93 (USD) for ADS:NYS. We also generated a valuation of $226.23 (USD) using other metrics and comparables.
The comparable companies were Credit Acceptance (CACC:NAS), Capital One Financial (COF:NYS), Green Dot (GDOT:NYS), Navient (NAVI:NAS) and Total System Services (TSS:NYS)

Company ADS:NYS End Date Value
Earnings/Share $14.10 (USD)
Book Value/Share $28.84 (USD)
Sales/Share $131.70 (USD)
Cash Flow/Share $44.48 (USD)
EBITDA/Share $0.00 (USD)
Price Based on Comps Adjustment Factor (%)
$379.82 (USD) 12.9
$100.81 (USD) 0.0
$439.44 (USD) -31.2
$515.81 (USD) -27.9
$0.00 (USD) -40.2
ADS:NYS Ratios Used Average Values CACC:NAS COF:NYS GDOT:NYS NAVI:NAS TSS:NYS
25.62 PE Ratio 26.94 13.22 26.34 48.32 7.33 39.48
8.39 PB Ratio 3.50 4.00 0.99 4.57 0.99 6.93
1.84 PS Ratio 3.34 5.60 1.78 4.14 1.72 3.45
5.44 PCF Ratio 11.60 10.98 3.41 20.11 3.30 20.17
12.42 EV to EBITDA 15.56 12.71 0.00 16.76 0.00 17.20

Multiples

Using a multiples approach we generated a valuation of  $349.71 (USD) for ADS:NYS

Company ADS:NYS End Date Value
Earnings/Share $14.10 (USD)
Book Value/Share $28.84 (USD)
Sales/Share $131.70 (USD)
Cash Flow/Share $44.48 (USD)
EBITDA/Share $31.80 (USD)
Price Based on Comps Adjustment Factor
$414.01 (USD) 0
$238.93 (USD) 0
$283.08 (USD) 0
$366.32 (USD) 0
$446.19 (USD) 0
Ratios Ratio Average
PE Ratio 29.36
PB Ratio 8.28
PS Ratio 2.15
PCF Ratio 8.24
EV to EBITDA 14.03

Adjusted Book Value versus Historical Price to Book

The average the Price to Book ratio for  ADS:NYS for the last 10 years was  8.07

We ran the Adjusted Book Value for  ADS:NYS and generated a book value of  $27.76 (USD)
By multiplying these we get an adjusted valuation of  $224.13 (USD)

Analyst Data

In the Stockcalc database there are 7 analysts that provide a valuation for ADS:NYS. The 7 analysts have a concensus valuation for ADS:NYS for 2018 of $272.57 (USD).

ADS:NYS Alliance Data Systems

Analyst Recommendation
Buy Hold Sell Rating
(of 5)
Guidance As Of
5 2 2 3.6667 Outperform 2018-2-22

Current Price: not available

Analyst Consensus
USD Millions 2017 2018 2019
Mean EPS 16.68 20.85 24.64
# EPS Analysts 8 8 6
Mean Revenue 7,605.60 8,317.80 8,946.90
# Revenue Analysts 6 6 3
Mean Target Price 272.57
Mean Cash Flow 30.05 27.95 59.53
Mean EBITDA 1,826.80 2,147.30 2,480.50
Mean Net Income 897.50 1,109.00 1,336.10
Mean Debt Outstanding
Mean Tax Rate 26.50 26.25 26.25
Mean Growth Rate 16.88
Mean Capital Expenditure 235.60 260.50 290.70

Company Overview (ADS:NYS USD)

Price 242.09
Range 239.16 – 242.28
52 week 210.43 – 276.37
Open 240.26
Vol / Avg. 547806/813521
Mkt cap 13.39B
P/E 25.62
Div/yield 2.28/0.01
EPS 7.34
Shares 55.3M
Beta 1.43
Summary chart

Detailed Company Description

Alliance Data Systems Corp provides marketing, loyalty, and credit solutions in the United States, Canada, and other countries. The business activity of the group is functioned through LoyaltyOne, Epsilon, and Card service segment.

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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