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Alliance Data Systems Corp ADS

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Morningstar’s Analysis

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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

Alliance Data Systems Spins Off Assets, but Challenges Remain

Michael Miller Equity Analyst

Analyst Note

| Michael Miller |

We were not too surprised to see the board at no-moat Alliance Data Systems vote in favor of the proposed spin-off of the company’s LoyaltyOne segment into an independent, publicly traded company that will be called Loyalty Ventures. As part of the plan, current shareholders will receive 81% of the new company and Alliance Data Systems will retain the remainder, with the intention being to monetize the rest later. The spin-off means that ADS will lose its Air Miles business, the largest airline miles program in Canada, which we view as a relatively attractive asset due to its reliable cash flow and steady growth. That said, the plan will make the firm a consumer finance pure play, with only its credit card and buy-now, pay-later businesses remaining. ADS is in a weak position competitively and financially. As such, we expect the spin-off will benefit the firm in the long run as it will allow management to focus its attention and resources on its core businesses. 

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Company Profile

Business Description

Formed by a combination of J.C. Penney’s credit card processing unit and The Limited’s credit card bank business, Alliance Data Systems is a provider of private label and co-branded credit cards, loyalty programs, and marketing services. The company’s most financially significant unit is its credit card business that partners with retailers to jointly market Alliance Data Systems’ credit cards to their customers. The company’s LoyaltyOne division operates the largest airline miles loyalty program in Canada and offers marketing services to grocery chains in Europe and Asia.

Contact
3075 Loyalty Circle
Columbus, OH, 43219
T +1 614 729-4000
Sector Financial Services
Industry Credit Services
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type Cyclical
Employees 8,000