In a concerted effort to return more value to shareholders, the board of directors of Alliance Data Systems Corporation (ADS) approved a new share buyback program. The company, with the new approval, is now authorized to repurchase shares worth $400 million in 2013.
It is likely that the announcement of a new share buyback program helped the share price move up 0.5%. The share price of Alliance Data closed at $155.21 as on Tuesday.
The company has consistently bought back shares. In the first nine months of 2012, it spent $65.4 million to repurchase 0.5 million shares. Alliance Data was left with $334.6 million under its authorization as of September 30, 2012.
On December 31, 2011, the board authorized to repurchase shares worth $400 million through 2012. The new approval replaces the current authorization, which expired on December 31, 2012. The company’s strong financial position provides sufficient support to its buyback program.
Following the new approval, the company’s share repurchase authorization has increased to nearly $2.8 billion since the first quarter of 2008. However, only $2 billion has been exhausted to buyback 36.3 million shares till now.
Over the last 30 days, there was earnings momentum. We believe that the company’s effort to return more value to shareholders might encourage analysts to raise their estimates providing an upside to its Zacks Rank.
Alliance Data is scheduled to release its fourth-quarter and full year 2012 earnings results on January 31, after the closing bell. The Zacks Consensus Estimates for the fourth quarter and 2012 are currently pegged at $1.67 and $8.16 per share, respectively, up nearly 5% and 13% for the respective periods. However, the Zacks Consensus Estimate for 2012 is below the company’s guidance of $8.50 per share.
Alliance Data has outperformed the Zacks Consensus Estimate and the company’s guidance in each of the first three quarters of 2012. We expect the trend to continue based on its year-to-date performance, strategic acquisitions, expansion of the Dotz Program and the signing of long-term agreements.
Alliance Data carries a Zacks Rank #2 (Buy). Peer Discover Financial Services (DFS) carries a Zacks Rank #3 (Hold).