Fundamentals Likely to Carry Alliance Data Higher

Kris Tuttle submits: After having some success bottom fishing American Express (AXP) and MBIA (MBI) recently, we started to look at AllianceData (ADS) post the drop from the potential failure of the Blackstone (BX) deal.

Our interest was piqued because before the deal was announced ADS was considered to be a great business and had a long record of consistently good performance (27 consecutive quarters).

The recent Q4 report and outlook for 2008 make it clear that the company did not have their operations or planning disrupted by the activity surrounding Blackstone.

Due to the situation with Blackstone, there was no Q&A on the call but the level of detail was fairly high. Management did have a little bit of an edge in their tone suggesting that they are clearly annoyed with their experience so far with their "partners" in the private equity world.

These are not the type of situations in which we are likely to do a great deal of unique work or detailed financial analysis but we can do some quick figuring. Given 20%+ growth we’d say a 15x multiple on current year cash eps is reasonable. Taking a 10% haircut on management guidance gets us to about $4/share this year and suggests a $60 share price. It’s lower than the $81 proposed acquisition price but a good deal better than the current $43 or so the comapny is fetching in the market.

We established a long position in the market on January 30th looking more for a short term bounce in the shares from these levels.

More news on the legal and acquisition front may push the share price around but fundamentals will eventually carry the stock to higher levels.