Morningstar | CEO and CFO Out at Alliance Data Systems
Narrow-moat Alliance Data Systems announced the resignation of CEO Ed Heffernan and the replacement of CFO Charles Horn, who had previously announced his retirement. Heffernan will be replaced as CEO by Melissa Miller, who served as president of ADS’ Card Services business for the past eight years. Horn will be succeeded by Tim King, who previously had worked alongside Miller as CFO of Card Services. While this transition wasn’t anticipated, it doesn’t come as a big surprise. The company has lost the confidence of the market with shares trading more than 40% below 52-week highs. In addition, the outgoing management team seemed overly fixated with pleasing analysts with aggressive guidance that would prove unattainable. As of the first quarter, outgoing management still anticipated ending 2019 with $20.5 billion in receivables. Barring a portfolio acquisition, we find this guidance to be implausible. It would not surprise us if Miller’s first act as CEO is to present a more conservative forecast or stop providing guidance altogether. For now, we’ll be maintaining our fair value estimate of $220 per share. We regard shares as undervalued but also highlight ADS’ high uncertainty rating.Though we have criticized the outgoing management team, we will acknowledge its successes. In the aftermath of the financial crisis, Horn created significant value through share repurchases while aggressively growing the card portfolio when it was cheap to do so. From 2007 to 2010, ADS repurchased more than 30% of its shares at massive discounts. In addition, during Horn’s tenure the company achieved average earnings growth of more than 20% per year.
Alliance Data Systems is a provider of data-driven marketing and loyalty solutions. The company operates in two segments: LoyaltyOne? and Card Services. LoyaltyOne provides coalition and short-term loyalty programs through the Canadian AIR MILES? Reward Program and BrandLoyalty Group B.V. Card Services encompasses credit card processing, billing and payment processing, customer care and collections services for private label retailers as well as private label and co-brand retail credit card and loan receivables financing, including securitization and other funding of certain credit card and loan receivables that it underwrites from its private label and co-brand retail credit card programs.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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