Alliance Is Charging Ahead

By Gene G. Marcial

Set for a New Advance?
Alliance Data Systems (ADS ) is an odd duck: not quite a tech outfit, yet not a bank. More than 70% of its sales and earnings come from credit cards and related services. That has fueled rapid growth in recent years and has hiked shares from 14 last March to 27.10 currently.

David Scharf of JMP Securities sees the stock at 36 in a year. "The likelihood of an upside remains strong," he says, "based on our customer survey of sales growth." The company issues private-label credit cards for such stores as AnnTaylor (ANN ), Victoria's Secret, and J. Crew, and it also services those accounts. In addition, it handles billings for utilities like Duke (DUK ) and TXU (TXU ) and the air-miles program of Air Canada (ACNAQ.OB ).

Scharf figures it will earn 91 cents a share on sales of $1 billion in 2003, and $1.05 on $1.2 billion in 2004. Alliance may look pricey at 25 times 2004 earnings, but it posted an annual growth rate of 26% in the past four years, notes Chief Financial Officer Ed Heffernan. And Dris Upitis of Credit Suisse First Boston (CSR ), who rates Alliance outperform, says the stock is "attractively valued." Credit Suisse did banking for Alliance.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

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