DFS Discover Financial Services

Alliance Data Systems Corporation (ADS) has inked a long-term deal with Sycle, LLC to offer credit services for hearing devices and related services to the latter’s patients.

Headquartered in San Francisco, Sycle (also known as Sycle.net) provides online, real-time, multi-location appointment scheduling and one-to-one marketing and patient relationship management systems to nearly 4,000 hearing care clinics throughout the United States, and is the largest and fastest-growing audiology services provider.

Per the agreement, Alliance Data will offer credit services, including receivables funding, credit authorization, statement generation, remittance processing and customer service functions. The company will assimilate its service with Sycle's patient management and reporting system for smooth functioning.

The company estimates the market opportunity will surpass $7 billion by 2016 with 30% of Americans over the age of 65 suffering from impaired hearing and demand growing for audiology services for aging Baby Boomers entering 65 years of age this year.

Moreover, this agreement will help Alliance Data to have an exposure beyond its conventional retail segment to tap profitable growth opportunities.

In 2010, the Private Label Services and Credit segment recorded the highest growth in revenue. Revenue from the segment increased a whopping 96% from 2009. We expect this transaction will help the company generate additional revenue and help the segment to continue delivering robust growth going forward.

During the earnings conference call, Alliance Data guided single-digit growth in revenues and core earnings of $1.65 per share for first quarter 2011. The Zacks Consensus Estimate for first-quarter 2011 is $1.53 per share.

The company also projected revenues of $3.0 billion and adjusted earnings of $6.75 per share for 2011. The Zacks Consensus Estimate 2011 is $6.23 per share.

The company remains poised to fare well in the upcoming quarters based on continued strong performance across the segment, solid financial position and focus on boosting shareholder value. However, an increasing debt level makes us cautious.

The quantitative Zacks #3 Rank (short-term Hold rating) for Alliance Data indicates no clear directional pressure on the stock over the near term.

Headquartered in Dallas, Texas, Alliance Data Systems Corporation, together with its subsidiaries, provides data-driven and transaction-based marketing and customer loyalty solutions primarily in the United States and Canada. It competes with Discover Financial Services (DFS).

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