ADS - Embedded Expectations Analysis - 2020 06 25
Alliance Data Systems Corporation (ADS:USA) currently trades at a historical low relative to UAFRS-based (Uniform) earnings, with a 6.0x Uniform P/E. At these levels, the market has bearish expectations for the firm, but management is confident about customer payments, their liquidity, and debtSpecifically, management is confident they will adjust their loan loss reserves, if necessary, based on the fluid economic outlook. They are also confident that their forbearance programs will continue to grow, and that their consumers are actively paying their obligations. In addition, they are confident they are cutting expenses to enhance their capital position, that they are looking for sustainable top-line and bottom-line growth in the long-term, and that they have plenty of cash and liquidity. Furthermore, they are confident they can pay their debt service
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.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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