Tag Archives: FDX

An Investment Overview On Alliance Data Systems

Alliance Data Systems Corporation (ADS) has traded much lower through 2018. Market-wide worries about rate increases pulled back valuation premiums overall.

The company’s market is particularly exposed to interest rate risks. This situation justifies a pullback, but I believe that the dramatic selloff it’s currently experiencing is unwarranted and overdone.

Source: Finviz, Quote ADS.

Business

ADS is a marketing consulting firm that utilizes data analytics to provide its clients with market insights and other services. It’s also exposed to the financial sector through unsecured credit, which is dependent on consumer spending on associated stores.

Their market mainly consists of big corporations and business that require consulting services. Bank of America (NYSE:BAC), General Motors (NYSE:GM), FedEx (NYSE:FDX), Kellogg (NYSE:K), and Marriott (NYSE:MAR) are among their clients. ADS provides them with customer loyalty programs from data captured in client interactions. With this data, it can run algorithms and extract insights that are valuable for clients.

Source: Alliance’s logos.

Naturally, ADS has longstanding client relations, which makes it a relatively predictable entity. Business wise, they operate in the following segments: LoyaltyOne, Epsilon, and Card Services.

LoyaltyOne: This segment consists of the popular AIR MILES reward program. It also offers other short-term loyalty programs and loyalty services like consulting, analytics, and mobile applications. Epsilon: Provides clients with marketing services like CRM, agency services, data, and affiliate marketing. Card Services: This section of the business operates from receivables financing, processing services, and marketing services. This segment behaves very similarly to a credit card company.

Source: Alliance Data Systems 2017 annual report and author’s elaboration.

Segment Breakdown

Out of the three segments, Card Services is the most prominent component of the company. In 2017, it reported total revenues of $4.17 billion. The same year the other two segments, LoyaltyOne and Epsilon, reached $3.58 billion together. The card services business is the most important for Alliance Data Systems.

Source: Alliance Data Systems 2017 annual report and author’s elaboration.

Going more in-depth into this segment, I found that the credit they give to their clients is unsecured. Because of this, they have to go to underwriters to securitize the debt and be able to sell it more efficiently. For this reason, ADS behaves similarly to a credit card company, where it has to run its big data algorithms to select the amount of exposure to each client and account approvals.

Source: Alliance Data Systems 2017 annual report.

This process of selection with big data analytics helps ADS keep its client delinquencies down. Last year, that figure sat at roughly 5%, but it’s slowly rising year over year. This massive exposure to the Card Services market and their high levels of debt makes the company particularly sensitive to interest rate fluctuations.

Interest Rate Risk

Management recognizes that higher interest rates will reduce their FCF. Furthermore, it could derail any potential acquisitions or delay capital expenditures. Just for 2017, their interest expense was a whopping $564.4 million (7.3% of total revenues).

In other words, almost 35% of their operating expenses are paying off interest and other costs on their debt. This expense covers securitization funding costs, interest on deposits, and interest on long-term debt.

From their balance sheet, we can see that deposits (36%), their debt (20%), and other borrowings (29%) fund 84% of the company’s assets. These percentages indicate that ADS is a highly leveraged company, although these figures are somewhat acceptable for businesses within the credit market.



Source: Alliance Data Systems 2017 annual report.

However, as interest rates rise, this could pose a severe problem for ADS. A mere 1% increase or decrease in rates could have a change in interest rate expense of $112 million. I expect interest rates to continue to rise this year. The ten-year could reach even 4% by EOY 2018. This market risk is material for ADS. Although, management expects to be able to hedge for this risk through derivatives and other interest rate securities.

I think that it’s probably for this reason that ADS has traded lower this year. The crack in the bull market happened last February. It’s always hard to pinpoint a specific cause for the pullback, but many agree it had something to do with rates rising. The 10-year treasury bond cracked 3% and that influences market prices.

The problem is that ADS stock has additional interest rate risk for the reasons I previously pointed out. On top of that, it’s exposed to the credit card market, which is experiencing an increasing delinquency rate. As the Fed continues to tighten, ADS should see its costs and delinquencies rise, which could have a negative impact on results. As an added worry, the LIBOR is also increasing, which should drag results even further.

On The Other Hand

President Trump has brought with him a new age of deregulation and lower taxes for corporations. These should benefit particularly to ADS. Firstly, because Alliance Data previously paid one of the highest tax rates among Fortune 500 companies, hence, because of the tax cuts signed in 2017, it’ll add $100 million in FCF for 2018.

Moreover, on the regulatory side of the business, the company’s Card Service segment is subject to the Dodd-Frank regulations. These rules will most likely be reversed or eliminated soon. Hence, Alliance’s business should benefit because of deregulation.

Source: Statista – Management consulting market size.

Also, the other two segments of ADS should be ok in my opinion. The marketing and management consulting market is expected to keep growing at a reasonable pace for the next few years. Secular growth should occur even despite the rise of ad blockers, cookie blockers, and tracking protection lists (TPLs). Nevertheless, those unlikely risks could render the company’s marketing services obsolete.

Furthermore, other systemic risks shouldn’t affect the company. For example, management claims that inflation is unlikely to hit their results for the time being.

Also, the AIR MILES and BrandLoyalty programs will benefit from the 2018 FIFA World Cup. This event should increase consumer spending with ADS and help generate double-digit growth in both of these segments.

Buybacks and Dividends

ADS is a very shareholder-friendly company. It has a stock repurchase program and recently announced quarterly dividends payable to shareholders. Their stock repurchases were done at the 225-240 range. These transactions give us an idea of where we’re likely to find buying pressure.

Source: Alliance Data Systems 2017 annual report.

During 2017, ADS bought back 2.3 shares of its stock to the tune of $553.7 million. It still has left $446 million in dry powder to keep repurchasing its shares. Have in mind that it previously bought its shares at the 225-240 price range. Because of this, I’d imagine that management should find the current share price very attractive.

Source: Alliance Data Systems 2017 annual report.

Conclusion

ADS is a good value option. It’s a stable business that’s growing reasonable overall. At its currently low multiples, it looks like an attractive candidate for a value portfolio. ADS sports a meager PE ratio of 15.72, and its forward PE sits at 8.20.

It’s also a company that has shown interest in its shares at higher levels than its current price tag and has enough free cash flow to buy back more shares. Also, its recent dividend announcement adds another shareholder-friendly aspect to the stock.

Nevertheless, investors should take caution with ADS because it’s particularly exposed to interest rate risks. The firm’s management has shown prudence and skill so far in this area. Moreover, they’re aware of such systemic risks, and they’re hedging their business through derivatives and other interest rate securities. Still, further rate increases should slow down Alliance’s secular growth.

All in all, ADS presents risks that justify a slight pullback. However, after such a massive selloff, it currently offers an attractive value proposition for investors.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

FedEx Corporation Has Amazon Derangement Syndrome

Like many companies in today’s stock market FedEx Corporation (NYSE:FDX) is suffering from Amazon.Com Inc. (NASDAQ:AMZN) derangement syndrome.

Symptoms include a refusal to accept good news, an assumption that Amazon is going to seize its market and a bargain stock price.

Despite profit growth of 36% over the last three years, shares in the package delivery company are down 6.6% so far in 2018, while those of Amazon are up 32%. Its market cap is $64 billion, about even with one year’s sales when they’re reported June 19.

FDX is profitable, with analysts expecting net income of $5.72 per share on $17.13 billion of revenue for the quarter, and 21 of 28 suggesting investors buy the stock.

Yet the stock goes nowhere, because traders see Amazon around every tree.

It’s not.

FedEx and Amazon

Amazon pays $13 billion to deliver its packages, splitting the U.S. business among FedEx, United Parcel Service Inc. (NYSE:UPS), the U.S. Postal Service and (recently) its own delivery efforts. 

This has led to the assumption that Amazon is put to kill FedEx.

But while Amazon is a big account for FedEx, it’s only 3% of FedEx’s business. If Amazon went away tomorrow, FedEx would still be growing.

It doesn’t hurt that FedEx is cozying up to Walmart Inc. (NYSE:WMT), the second-leading e-commerce player, with plans to put fulfillment centers in 500 Walmart stores.  The street presence would go alongside the former Kinko’s copying stores, rebranded to FedEx and bought in 2003 for $2.4 billion,  of which there were 1,200 when the buyout was completed — one-third of them open 24 hours per day.

FedEx continues to innovate, now with trucks powered by hydrogen fuel cells.  FedEx has been growing internationally with such acquisitions as Flying Tiger, GENCO and (most recently) TNT Express.  When Amazon delivers to Africa, it will probably FedEx it.

FedEx Stands Alone

It’s for these reasons that most analysts, and many InvestorPlace writers, continue to like FDX stock.

Serge Berger made it his “trade of the day” back in April, and the shares obediently went from $240 to $255 each, although they’re now back at $240.

Lawrence Meyers, noting FedEx’s independence from Amazon, said it was “safe to buy the stock” the same month. Tyler Craig has also offered a cheap way to profit on FDX with call spreads.

Despite the stock being “ready to fly”, it just hasn’t. It is useless to argue with the market, saying the price “should be” higher. It is what it is.

Compare Brokers

Here’s another argument for buying the stock, however. Income. FDX has been increasing its dividend rapidly in recent years. It was at 15 cents per share each quarter back in 2013. It’s at 50 cents per quarter now. That’s $2 per year, which doesn’t sound like much if you’re paying $240 to get in on it. But those dividend investors who got in back when the stock was at $100 per share now have a 2% yield and a capital gain of $140 per share.

The Bottom Line on FDX Stock

FedEx management has realized they’re not a trading stock. They’re a buy-and-hold stock.

Over time — and we’re talking decades here — FedEx has turned many small investors into millionaires. Had I picked up a few shares when I started my career in 1978, my basis would be roughly $2 per share before five stock splits and I would have a continuing stream of dividends going back to 2002.

That’s how you play the investing game. Buy good stocks, like FedEx, hold them, and ignore the noise. Let time work its magic.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time,  available now at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he own

Despite An Earnings Beat, Shares Of FedEx Are Continuing To Look Weak In The Near Term

Based on FedEx Corporation's (NYSE: FDX) most recent earnings report, you'd think the stock would be performing better. 

Not only did the company report an Earnings Per Share figure of $3.72 compared to the consensus estimate of $3.12, their sales figure of $16.5 billion also exceeded Wall Street's estimate at $16.15 billion. 

Beyond that, their EPS guidance estimate for the fiscal year came in at $15-$15.40, a huge beat of the $13.61 estimate. 

Strong EPS, sales, and guidance? That's usually a recipe for stocks to move higher. But not in this case. 

Since its earnings report after the close on March 20, FDX is down about 4 percent. And it only looks to be getting weaker. 

The charts below show this. They come courtesy of VantagePoint, an AI platform that uses intermarket analysis to predict future price action between 1-3 days in advance. 

Both of the following charts show FDX over the last three months with each candle representing a day. We're focusing on the blue line, that's a predicted moving average. 

In the first chart, the blue line is serving as a prediction four 48 hours in advance. Notice how that line crossed below the black line—a simple 10-day moving average—on April 24. That was the start of the most recent bearish trend. 

In other words, since April 24 VantagePoint has been predicting FDX's 6-day moving average would be lower in 48 hours than it currently is. 

 

capture_451.png

This next chart shows pretty much the same thing, but a little farther out. Instead of predicting FDX's 6-day moving average 48 hours out, it predicts it 72 hours out.

capture_452.png

Note the trend shift on May 1. That's a stronger confirmation because it's telling us the stock will be weak until at least next Tuesday's close. 

On top of that we have the red-green bar at the bottom of the chart. That's a Neural Index that measures strength and weakness for a 48-hour period. In this case, the move to the red position further makes the case for a potentially bearish scenario.

As of publication shares of FDX were trading flat from Thursday's close. 

 

VantagePoint is a content partner of Benzinga. For a live demo click here

Top 5 Wireless Telecom Companies To Invest In Right Now

FedEx (FDX) is scheduled to release its earnings next week–and RBC’s John Barnes and team aren’t expecting great news:

FedExreports 3FQ/16 (ended February 2016) results on March 16 after market close…We are trimming our 3FQ/16 EPS estimates to reflect higher than expected peak season costs. We also expect the company to rein in FY/16 EPS guidance when it reports. Accordingly, we are cautious onFedEx into earnings next week…

FedExoperations negatively impacted by severe weather and a last minute surge in volumes the week before Christmas. In order to cope, the company ran operations of Christmas and the day after. We believe this reduced Ground margins by 70 bps. Our sense is that this was less of an issue for the Express operation…

Mid-point of guidance likely to move lower. Our new FY/16 EPS estimate of $10.43 sits near the low end of the $10.40-$10.90 guidance range. We expect management to both lower guidance and tighten the range to $10.40-10.60 even after incorporating the benefit from share repurchase activity.

Top 5 Wireless Telecom Companies To Invest In Right Now: Nuveen Municipal Value Fund Inc.(NUV)

Nuveen Municipal Value Fund, Inc. is a closed-ended fixed income mutual fund launched by Nuveen Investments, Inc. The fund is managed by Nuveen Asset Management. It invests in the fixed income markets of the United States. The fund also invests some portion of its portfolio in derivative instruments. It invests in undervalued municipal securities and other related investments the income, exempt from regular federal income taxes that are rated Baa or BBB or better. It employs fundamental analysis with bottom-up stock picking approach to create its portfolio. The fund benchmarks the performance of its portfolio against the Standard & Poor?s (S&P) National Municipal Bond Index. Nuveen Municipal Value Fund, Inc. was formed on April 8, 1987 and is domiciled in the United States.

Advisors’ Opinion:

  • [By Donald van Deventer]

    The latest implied forward rate forecast from Kamakura Corporation shows projected 10-year U.S. Treasury yields differing -0.07% to 0.03% from last week while fixed rate mortgage yields varied by -0.01% to 0.08%. Mortgage yields, determined by the Monday through Wednesday weekly survey of the Federal Home Loan Mortgage Corporation, lag Treasury movements simply because of the 3-day yield calculation used in the Primary Mortgage Market Survey. The 10-year U.S. Treasury yield is projected to rise from 2.92% at Thursday’s close (down 0.06% from last week) to 3.374% (down 0.06% from last week) in one year. The 10-year U.S. Treasury yield in ten years is forecast to reach 4.639%, 1 basis point lower than last week. The 15-year fixed rate mortgage rate is forecast to rise from the effective yield of 3.69% on Thursday (down 0.001% from last week) to 4.222% (down 0.006% from last week) in one year and 6.29% in 10 years, up 0.038% from last week. We explain the background for these calculations in the rest of this note, along with some mortgage servicing rights metrics. The forecast allows investors in exchange traded U.S. Treasury funds (TLT) (TBT), total return bond funds (BOND), municipal bonds (NUV) and exchange traded mortgage funds (REM) to assess likely total returns over the next 120 months. Treasury-related exchange traded funds affected by the forward rates include:

Top 5 Wireless Telecom Companies To Invest In Right Now: Pacific Gas & Electric Co.(PCG)

 

PG&E Corporation, through its subsidiary, Pacific Gas and Electric Company, transmits, delivers, and sells electricity and natural gas to residential, commercial, industrial, and agricultural customers primarily in northern and central California. The companys electricity distribution network consists of approximately 142,000 circuit miles of distribution lines, 58 transmission switching substations, and 603 distribution substations; and electricity transmission network comprises approximately 18,400 circuit miles of interconnected transmission lines and 91 electric transmission substations. Its natural gas system consists of approximately 42,800 miles of distribution pipelines, approximately 6,700 miles of backbone and local transmission pipelines, and various storage facilities. The company operates various electricity generation facilities, such as nuclear, hydroelectric, fossil fuel-fired, and photovoltaic. PG&E Corporat ion was founded in 1905 and is headquartered in San Francisco, California.

Advisors’ Opinion:

  • [By David Dittman]

    PG&E Corp (NYSE: PCG), Edison International (NYSE: EIX) and Sempra Energy (NYSE: SRE) are the parent entities of California’s investor-owned utilities.

Top 5 Freight Stocks To Watch For 2016: Tuesday Morning Corp.(TUES)

Tuesday Morning Corporation engages in the retail sale of decorative home accessories, housewares, and gifts in the United States. The company?s merchandise primarily consists of lamps, rugs, furniture, kitchen accessories, small electronics, gourmet housewares, linens, luggage, bedroom and bathroom accessories, toys, stationary, and silk plants, as well as crystal, collectibles, and silver serving pieces. It also offers apparel and accessories. In addition, the company provides brand name merchandise, including cookware, appliances, linens, bath towels, luggage, flatware, tabletop, crystal, collectibles, dolls, china and giftware, and rugs. As of September 21, 2011, it operated 861 discount retail stores in 43 states. The company was founded in 1974 and is headquartered in Dallas, Texas.

Advisors’ Opinion:

  • [By Monica Gerson]

    Tuesday Morning (NASDAQ: TUES) shares gained 4.87% to create a new 52-week high of $14.63. Tuesday Morning shares have jumped 110.09% over the past 52 weeks, while the S&P 500 index has gained 18.17% in the same period.

Top 5 Wireless Telecom Companies To Invest In Right Now: Transocean Inc.(RIG)

Transocean Ltd. provides offshore contract drilling services for oil and gas wells worldwide. It offers deepwater and harsh environment drilling, oil and gas drilling management, and drilling engineering and drilling project management services. The company also offers well and logistics services. In addition, it engages in oil and gas exploration, development, and production activities primarily in the United States offshore Louisiana and Texas, and in the United Kingdom sector of the North Sea. As of February 10, 2011, the company owned, had partial ownership interests in, and operated 138 mobile offshore drilling units, including 47 high-specification floaters, 25 midwater floaters, 9 high-specification jackups, 54 standard jackups, and 3 other rigs, as well as 1 ultra-deepwater floater and 3 high-specification jackups under construction. Transocean Ltd. was founded in 1953 and is based in Zug, Switzerland.

Advisors’ Opinion:

  • [By Paul Ausick]

    Following a November 2011 leak of about 3,600 barrels of oil from a rig offshore of Brazil, Chevron Corp. (NYSE: CVX) and driller Transocean Ltd. (NYSE: RIG) were slapped with a penalty of $17.5 billion by the governments public prosecutors office. That payment reportedly hasbeen reduced to less than $42 million as the company and the government have agreed on a settlement.

  • [By Ben Levisohn]

    Fleet updates from Noble (NE) and Transocean (RIG) demonstrated that there is, indeed, work to be had at the right price.Raymond James analystPraveen Narra and team like what they saw in Transocean’s fleet update:

  • [By Teresa Rivas]

    Chevron and Transocean (RIG) were named in the $20 billion lawsuit over a 2011 oil spill off the southeast coast of the country, and both parties are expected to sign off on the deal today, reports The Wall Street Journal. Criminal charges against executives have already been dropped.

Top 5 Wireless Telecom Companies To Invest In Right Now: TiVo Inc.(TIVO)

TiVo Inc., together with its subsidiaries, provides technology and services for television solutions, including digital video recorders (DVRs) and connected televisions in the United States and internationally. The company offers subscription-based TiVo service, which enhances home entertainment by providing consumers with a way to record, watch, and control live television, as well as to receive videos, pictures, and movies from cable, broadcast, and broadband sources in one interface. It also provides a platform for advertising and audience research measurement services. TiVo Inc. distributes the TiVo DVR through consumer electronics retailers and its online store at TiVo.com, as well as the TiVo service through agreements with satellite and cable television service providers; and broadcasting companies. As of January 31, 2011, it had approximately 1.5 million subscriptions to the TiVo service. The company was founded in 1997 and is headquartered in Alviso, California. Advisors’ Opinion:

  • [By Lisa Levin]

    TiVo Inc. (NASDAQ: TIVO) shares were also up, gaining 21 percent to $9.30. The New York Times, citing sources familiar with the issue, said Rovi Corporation (NASDAQ: ROVI) is in advanced negotiations to acquire TiVo. TiVo shareholders would reportedly receive both cash and stock; however, the price tag is yet to be determined.

  • [By Lisa Levin]

    TiVo Inc. (NASDAQ: TIVO) shares were also up, gaining 20 percent to $9.22. The New York Times reported that Tivo and Rovi Corporation (NASDAQ: ROVI) are in merger talks.