DFS Discover Financial Services

With an intention to return more value to its shareholders, the board of directors of Alliance Data Systems Corporation (ADS) authorized the company to buy back $400 million worth of stock in 2012.

With the approval, the total buyback authorization now comes to $2.4 billion. This authorization program began in the first quarter of 2008, when the board had approved a buyback program of $500 million. Since then, the company has deployed $1.9 billion to buy back 35.3 million or 45% of the company’s shares.

The company intends to use its free cash flow to fund the share repurchase. The company also plans to maintain debt at a level that will enable it to raise resources to pursue acquisitions and expansions as and when the need arises.

However, there was no spurt in the stock price following the announcement. The share price of Alliance Data inched down 0.2% to close at $102.80 as on Monday. 

Alliance Data, at present operates under a buyback program where the company is authorized to repurchase up to $400 million of the stock through the end of 2011. Last quarter, Alliance Data bought back 0.8 million shares. This new authorization will replace the current program.

Over the last 7 days, only 1 out of 11 analysts raised the estimate for 2012. This share repurchase announcement might encourage more analysts to pull up their estimates.

The Zacks Consensus Estimate for fourth-quarter 2011 is $1.35 per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $6.93 per share and $7.88 per share.

The quantitative Zacks #2 Rank (short-term Buy rating) for the company indicates upward 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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