Intrinsic value of Alliance Data Systems - ADS

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$249.63

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$249.63

 
Intrinsic value

$215.94

 
Up/down potential

-13%

 
Rating

hold

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of ADS stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 14.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  10.84
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
  4.87
  4.89
  4.90
  4.91
  4.92
  4.92
  4.93
  4.94
  4.95
  4.95
  4.96
  4.96
  4.96
  4.97
  4.97
  4.97
  4.98
Revenue, $m
  7,138
  7,459
  7,799
  8,157
  8,535
  8,934
  9,354
  9,797
  10,263
  10,754
  11,271
  11,815
  12,388
  12,989
  13,622
  14,288
  14,988
  15,723
  16,496
  17,309
  18,162
  19,059
  20,002
  20,992
  22,032
  23,125
  24,273
  25,479
  26,746
  28,076
  29,473
Variable operating expenses, $m
 
  5,980
  6,235
  6,504
  6,788
  7,087
  7,403
  7,735
  8,085
  8,454
  8,842
  8,870
  9,300
  9,752
  10,227
  10,727
  11,252
  11,804
  12,384
  12,994
  13,635
  14,309
  15,016
  15,760
  16,541
  17,361
  18,223
  19,128
  20,079
  21,078
  22,127
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  5,873
  5,980
  6,235
  6,504
  6,788
  7,087
  7,403
  7,735
  8,085
  8,454
  8,842
  8,870
  9,300
  9,752
  10,227
  10,727
  11,252
  11,804
  12,384
  12,994
  13,635
  14,309
  15,016
  15,760
  16,541
  17,361
  18,223
  19,128
  20,079
  21,078
  22,127
Operating income, $m
  1,266
  1,479
  1,564
  1,653
  1,747
  1,847
  1,951
  2,062
  2,178
  2,300
  2,429
  2,945
  3,088
  3,238
  3,395
  3,561
  3,736
  3,919
  4,112
  4,314
  4,527
  4,751
  4,985
  5,232
  5,492
  5,764
  6,050
  6,351
  6,666
  6,998
  7,346
EBITDA, $m
  1,778
  2,024
  2,116
  2,213
  2,316
  2,424
  2,538
  2,658
  2,785
  2,918
  3,058
  3,206
  3,361
  3,524
  3,696
  3,876
  4,066
  4,266
  4,476
  4,696
  4,928
  5,171
  5,427
  5,695
  5,978
  6,274
  6,585
  6,913
  7,256
  7,617
  7,996
Interest expense (income), $m
  405
  374
  382
  418
  455
  495
  536
  580
  626
  675
  726
  780
  837
  896
  959
  1,025
  1,095
  1,168
  1,244
  1,325
  1,410
  1,499
  1,592
  1,691
  1,794
  1,902
  2,016
  2,136
  2,262
  2,394
  2,533
Earnings before tax, $m
  837
  1,105
  1,181
  1,235
  1,292
  1,352
  1,415
  1,482
  1,552
  1,626
  1,703
  2,165
  2,251
  2,341
  2,436
  2,536
  2,641
  2,751
  2,867
  2,989
  3,117
  3,252
  3,393
  3,542
  3,698
  3,862
  4,034
  4,215
  4,405
  4,604
  4,813
Tax expense, $m
  319
  298
  319
  334
  349
  365
  382
  400
  419
  439
  460
  585
  608
  632
  658
  685
  713
  743
  774
  807
  842
  878
  916
  956
  998
  1,043
  1,089
  1,138
  1,189
  1,243
  1,300
Net income, $m
  432
  807
  862
  902
  943
  987
  1,033
  1,082
  1,133
  1,187
  1,243
  1,580
  1,643
  1,709
  1,778
  1,851
  1,928
  2,009
  2,093
  2,182
  2,276
  2,374
  2,477
  2,585
  2,699
  2,819
  2,945
  3,077
  3,215
  3,361
  3,514

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,859
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  25,514
  24,699
  25,823
  27,010
  28,262
  29,582
  30,974
  32,440
  33,985
  35,611
  37,322
  39,123
  41,018
  43,011
  45,107
  47,311
  49,628
  52,063
  54,623
  57,313
  60,140
  63,110
  66,231
  69,510
  72,955
  76,574
  80,375
  84,368
  88,562
  92,967
  97,593
Adjusted assets (=assets-cash), $m
  23,655
  24,699
  25,823
  27,010
  28,262
  29,582
  30,974
  32,440
  33,985
  35,611
  37,322
  39,123
  41,018
  43,011
  45,107
  47,311
  49,628
  52,063
  54,623
  57,313
  60,140
  63,110
  66,231
  69,510
  72,955
  76,574
  80,375
  84,368
  88,562
  92,967
  97,593
Revenue / Adjusted assets
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
Average production assets, $m
  1,685
  1,760
  1,840
  1,925
  2,014
  2,108
  2,208
  2,312
  2,422
  2,538
  2,660
  2,788
  2,923
  3,065
  3,215
  3,372
  3,537
  3,711
  3,893
  4,085
  4,286
  4,498
  4,720
  4,954
  5,200
  5,458
  5,728
  6,013
  6,312
  6,626
  6,956
Working capital, $m
  10,359
  3,730
  3,899
  4,078
  4,268
  4,467
  4,677
  4,898
  5,132
  5,377
  5,636
  5,908
  6,194
  6,495
  6,811
  7,144
  7,494
  7,862
  8,248
  8,654
  9,081
  9,530
  10,001
  10,496
  11,016
  11,563
  12,137
  12,740
  13,373
  14,038
  14,737
Total debt, $m
  12,549
  10,922
  11,934
  13,002
  14,129
  15,317
  16,570
  17,889
  19,279
  20,743
  22,283
  23,904
  25,609
  27,403
  29,289
  31,273
  33,358
  35,550
  37,854
  40,275
  42,819
  45,492
  48,301
  51,252
  54,353
  57,609
  61,031
  64,624
  68,398
  72,363
  76,527
Total liabilities, $m
  23,856
  22,229
  23,241
  24,309
  25,436
  26,624
  27,877
  29,196
  30,586
  32,050
  33,590
  35,211
  36,916
  38,710
  40,596
  42,580
  44,665
  46,857
  49,161
  51,582
  54,126
  56,799
  59,608
  62,559
  65,660
  68,916
  72,338
  75,931
  79,705
  83,670
  87,834
Total equity, $m
  1,658
  2,470
  2,582
  2,701
  2,826
  2,958
  3,097
  3,244
  3,398
  3,561
  3,732
  3,912
  4,102
  4,301
  4,511
  4,731
  4,963
  5,206
  5,462
  5,731
  6,014
  6,311
  6,623
  6,951
  7,296
  7,657
  8,038
  8,437
  8,856
  9,297
  9,759
Total liabilities and equity, $m
  25,514
  24,699
  25,823
  27,010
  28,262
  29,582
  30,974
  32,440
  33,984
  35,611
  37,322
  39,123
  41,018
  43,011
  45,107
  47,311
  49,628
  52,063
  54,623
  57,313
  60,140
  63,110
  66,231
  69,510
  72,956
  76,573
  80,376
  84,368
  88,561
  92,967
  97,593
Debt-to-equity ratio
  7.569
  4.420
  4.620
  4.810
  5.000
  5.180
  5.350
  5.510
  5.670
  5.820
  5.970
  6.110
  6.240
  6.370
  6.490
  6.610
  6.720
  6.830
  6.930
  7.030
  7.120
  7.210
  7.290
  7.370
  7.450
  7.520
  7.590
  7.660
  7.720
  7.780
  7.840
Adjusted equity ratio
  -0.008
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  432
  807
  862
  902
  943
  987
  1,033
  1,082
  1,133
  1,187
  1,243
  1,580
  1,643
  1,709
  1,778
  1,851
  1,928
  2,009
  2,093
  2,182
  2,276
  2,374
  2,477
  2,585
  2,699
  2,819
  2,945
  3,077
  3,215
  3,361
  3,514
Depreciation, amort., depletion, $m
  512
  545
  552
  560
  568
  577
  586
  596
  606
  617
  629
  261
  273
  286
  300
  315
  331
  347
  364
  382
  401
  420
  441
  463
  486
  510
  535
  562
  590
  619
  650
Funds from operations, $m
  1,845
  1,351
  1,415
  1,462
  1,512
  1,564
  1,620
  1,678
  1,739
  1,804
  1,872
  1,841
  1,916
  1,996
  2,079
  2,167
  2,259
  2,355
  2,457
  2,564
  2,676
  2,794
  2,918
  3,048
  3,185
  3,329
  3,480
  3,639
  3,805
  3,980
  4,164
Change in working capital, $m
  -243
  161
  170
  179
  189
  199
  210
  221
  233
  246
  258
  272
  286
  301
  316
  333
  350
  368
  387
  406
  427
  449
  471
  495
  520
  546
  574
  603
  633
  665
  699
Cash from operations, $m
  2,088
  1,095
  1,245
  1,283
  1,323
  1,365
  1,409
  1,457
  1,506
  1,559
  1,614
  1,569
  1,630
  1,695
  1,762
  1,834
  1,909
  1,988
  2,071
  2,158
  2,249
  2,346
  2,447
  2,553
  2,665
  2,783
  2,906
  3,036
  3,172
  3,315
  3,465
Maintenance CAPEX, $m
  0
  -157
  -165
  -172
  -180
  -188
  -197
  -206
  -216
  -226
  -237
  -249
  -261
  -273
  -286
  -300
  -315
  -331
  -347
  -364
  -382
  -401
  -420
  -441
  -463
  -486
  -510
  -535
  -562
  -590
  -619
New CAPEX, $m
  -207
  -75
  -80
  -85
  -89
  -94
  -99
  -105
  -110
  -116
  -122
  -128
  -135
  -142
  -149
  -157
  -165
  -174
  -182
  -192
  -201
  -212
  -222
  -234
  -246
  -258
  -271
  -285
  -299
  -314
  -330
Cash from investing activities, $m
  -4,063
  -232
  -245
  -257
  -269
  -282
  -296
  -311
  -326
  -342
  -359
  -377
  -396
  -415
  -435
  -457
  -480
  -505
  -529
  -556
  -583
  -613
  -642
  -675
  -709
  -744
  -781
  -820
  -861
  -904
  -949
Free cash flow, $m
  -1,975
  862
  1,000
  1,026
  1,053
  1,082
  1,113
  1,146
  1,180
  1,216
  1,254
  1,192
  1,235
  1,279
  1,327
  1,376
  1,428
  1,483
  1,541
  1,602
  1,666
  1,733
  1,804
  1,878
  1,957
  2,039
  2,125
  2,216
  2,311
  2,411
  2,516
Issuance/(repayment) of debt, $m
  3,865
  232
  1,011
  1,068
  1,127
  1,188
  1,253
  1,320
  1,390
  1,463
  1,540
  1,621
  1,705
  1,794
  1,886
  1,983
  2,085
  2,192
  2,304
  2,421
  2,544
  2,673
  2,809
  2,951
  3,100
  3,257
  3,421
  3,594
  3,774
  3,964
  4,164
Issuance/(repurchase) of shares, $m
  -780
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  2,693
  232
  1,011
  1,068
  1,127
  1,188
  1,253
  1,320
  1,390
  1,463
  1,540
  1,621
  1,705
  1,794
  1,886
  1,983
  2,085
  2,192
  2,304
  2,421
  2,544
  2,673
  2,809
  2,951
  3,100
  3,257
  3,421
  3,594
  3,774
  3,964
  4,164
Total cash flow (excl. dividends), $m
  721
  1,094
  2,012
  2,094
  2,180
  2,271
  2,366
  2,465
  2,570
  2,680
  2,795
  2,813
  2,940
  3,073
  3,213
  3,360
  3,514
  3,675
  3,845
  4,023
  4,210
  4,407
  4,613
  4,830
  5,057
  5,296
  5,546
  5,809
  6,086
  6,376
  6,680
Retained Cash Flow (-), $m
  352
  -812
  -112
  -119
  -125
  -132
  -139
  -147
  -154
  -163
  -171
  -180
  -189
  -199
  -210
  -220
  -232
  -244
  -256
  -269
  -283
  -297
  -312
  -328
  -344
  -362
  -380
  -399
  -419
  -440
  -463
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  282
  1,899
  1,975
  2,055
  2,139
  2,227
  2,319
  2,416
  2,517
  2,624
  2,633
  2,750
  2,874
  3,003
  3,139
  3,282
  3,432
  3,589
  3,754
  3,928
  4,110
  4,301
  4,502
  4,712
  4,934
  5,166
  5,410
  5,666
  5,935
  6,217
Discount rate, %
 
  10.20
  10.71
  11.25
  11.81
  12.40
  13.02
  13.67
  14.35
  15.07
  15.82
  16.61
  17.45
  18.32
  19.23
  20.20
  21.21
  22.27
  23.38
  24.55
  25.77
  27.06
  28.42
  29.84
  31.33
  32.90
  34.54
  36.27
  38.08
  39.99
  41.98
PV of cash for distribution, $m
 
  256
  1,550
  1,435
  1,315
  1,192
  1,068
  946
  826
  712
  604
  485
  399
  323
  256
  199
  151
  113
  82
  58
  40
  27
  18
  11
  7
  4
  2
  1
  1
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Alliance Data Systems Corporation provides marketing and loyalty solutions in the United States and internationally. It facilitates and manages interactions between its clients and their customers through consumer marketing channels, including in-store, online, email, social media, mobile, direct mail, and telephone. The company’s LoyaltyOne segment owns and operates the AIR MILES Reward Program and BrandLoyalty program that are coalition and short-term loyalty programs. This segment also offers loyalty consulting, customer analytics, creative services, and mobile solutions. The company’s Epsilon segment provides direct marketing solutions that leverage transactional data to help clients acquire and build relationships with their customers. Its services include strategic consulting, customer database technologies, omnichannel marketing, loyalty management, proprietary data, predictive modeling, permission-based email marketing, personalized digital marketing, and direct and digital agency services. This segment’s marketing services comprise agency, marketing technology, data, strategy and insights, traditional and digital marketing, and affiliate marketing services. The company’s Card Services segment offers credit card processing, billing and payment processing, customer care, and collections services for private label retailers, as well as private label and co-brand retail credit card, and loan receivables financing, such as securitization of the credit card receivables that it underwrites from its private label and co-brand retail credit card programs. This segment also designs and implements strategies that help its clients in acquiring, retaining, and managing repeat customers. The company serves financial services, specialty retail, grocery and drugstore chains, petroleum retail, automotive, hospitality and travel, telecommunications, insurance, and healthcare markets. Alliance Data Systems Corporation was founded in 1996 and is headquartered in Plano, Texas.

FINANCIAL RATIOS  of  Alliance Data Systems (ADS)

Valuation Ratios
P/E Ratio 33.2
Price to Sales 2
Price to Book 8.6
Price to Tangible Book
Price to Cash Flow 6.9
Price to Free Cash Flow 7.6
Growth Rates
Sales Growth Rate 10.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 7.8%
Cap. Spend. - 3 Yr. Gr. Rate 8.9%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 608.9%
Total Debt to Equity 756.9%
Interest Coverage 3
Management Effectiveness
Return On Assets 2.9%
Ret/ On Assets - 3 Yr. Avg. 3.4%
Return On Total Capital 3.1%
Ret/ On T. Cap. - 3 Yr. Avg. 4.1%
Return On Equity 23.6%
Return On Equity - 3 Yr. Avg. 26.3%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 40.1%
Gross Margin - 3 Yr. Avg. 40.1%
EBITDA Margin 24.6%
EBITDA Margin - 3 Yr. Avg. 25.8%
Operating Margin 17.7%
Oper. Margin - 3 Yr. Avg. 19.3%
Pre-Tax Margin 11.7%
Pre-Tax Margin - 3 Yr. Avg. 14%
Net Profit Margin 6.1%
Net Profit Margin - 3 Yr. Avg. 8%
Effective Tax Rate 38.1%
Eff/ Tax Rate - 3 Yr. Avg. 37.2%
Payout Ratio 6.9%

ADS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ADS stock intrinsic value calculation we used $7138 million for the last fiscal year's total revenue generated by Alliance Data Systems. The default revenue input number comes from 2016 income statement of Alliance Data Systems. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our ADS stock valuation model: a) initial revenue growth rate of 4.5% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 10.2%, whose default value for ADS is calculated based on our internal credit rating of Alliance Data Systems, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Alliance Data Systems.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of ADS stock the variable cost ratio is equal to 80.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for ADS stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Alliance Data Systems.

Corporate tax rate of 27% is the nominal tax rate for Alliance Data Systems. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the ADS stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for ADS are equal to 23.6%.

Life of production assets of 10.7 years is the average useful life of capital assets used in Alliance Data Systems operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for ADS is equal to 50%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $1658 million for Alliance Data Systems - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 55.944 million for Alliance Data Systems is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Alliance Data Systems at the current share price and the inputted number of shares is $14.0 billion.


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COMPANY NEWS

▶ Alliance Data tops Street 1Q forecasts   [07:42AM  Associated Press]
▶ The Biggest Loser: Alliance Data Systems Drops 3.8%   [Apr-11-17 04:46PM  Barrons.com]
▶ Nike Struggles to Find Footing   [01:59PM  GuruFocus.com]
▶ Nike earnings could be squeezed by competition   [Mar-21-17 02:16PM  MarketWatch]
▶ [$$] Alliance Data: Time to Break Up?   [Mar-07-17 07:27AM  at Barrons.com]
▶ Q4 Earnings Miss Weighs On Capital One   [Jan-25-17 12:35PM  at Barrons.com]
Stock chart of ADS Financial statements of ADS
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The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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