Alliance Data Systems (ADS) PT Raised to $150 at Morgan Stanley on Bread Acquisition Dynamics

March 26, 2021 1:49 AM EDT
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Price: $101.50 -0.5%

Rating Summary:
    17 Buy, 18 Hold, 2 Sell

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    Up: 18 | Down: 23 | New: 29
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Morgan Stanley analyst Matthew Sharpe raised the price target on Alliance Data Systems (NYSE: ADS) to $150.00 (from $105.00) seeing more upside after performing a SOTP analysis that shows an attractive valuation and growth potential from the Bread acquisition (buy now, pay later).

The analyst reiterated an Overweight rating, stating "We think ADS is undervalued with Bread — the new e-commerce payments/Buy Now Pay Later (BNPL) business — in the mix. Our initial OW thesis on the stock has played out as ADS's all-in P/E is now in-line with cards peers at 7x. But ADS management has added a new leg to the stool with the recent entry into BNPL. The Bread acquisition adds revenue growth in one of the fastest growing areas of retail payments, BNPL. In our new sum-of-the-parts analysis, we layer in a 9x revenue multiple against our estimate for Bread revenues, half of the BNPL pure-play ~17x revenue multiple. We also apply a target P/E of 9x 2023e to the non-Bread business, in line with card peers. The result drives our price target to $150, with 34% upside, equivalent to ~10.5x our 2023e EPS (discounted back 1 yr by 10%). In our bull case we apply a nearpeer BNPL multiple of 15x revenues to Bread to get to a bull case value of $210."


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