As of May 23, 2025, Alliance Data Systems Corp's estimated intrinsic value ranges from $100.75 to $495.60 per share, depending on the valuation methodology applied.
| Valuation Method | Fair Value (USD) | Implied Upside/Downside |
|---|---|---|
| Discounted Cash Flow (10Y) | $275.14 | +384.4% |
| Discounted Cash Flow (5Y) | $167.03 | +194.1% |
| Dividend Discount Model (Multi-Stage) | $100.75 | +77.4% |
| Dividend Discount Model (Stable) | $192.77 | +239.4% |
| Earnings Power Value | $495.60 | +772.5% |
Is Alliance Data Systems Corp (ADS) undervalued or overvalued?
With the current market price at $56.80, the stock appears to be significantly undervalued.
Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Alliance Data Systems Corp's intrinsic value, including:
The cost of capital is a critical factor in valuation models, representing the required return for investors.
| WACC Component | Low | High |
|---|---|---|
| Long-term bond rate | 3.2% | 3.7% |
| Equity market risk premium | 4.2% | 5.2% |
| Adjusted beta | 2.79 | 3.29 |
| Cost of equity | 15.0% | 21.4% |
| Cost of debt | 4.0% | 4.5% |
| Tax rate | 25.0% | 25.8% |
| Debt/Equity ratio | 6.51 | 6.51 |
| After-tax WACC | 4.6% | 5.7% |
Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:
| DCF Model | Fair Value | Enterprise Value | % from Terminal Value |
|---|---|---|---|
| 5-Year Growth | $167 | $23,763M | 103.2% |
| 10-Year Growth | $275 | $29,163M | 93.0% |
| 5-Year EBITDA | $(1,234) | $9,883M | 107.6% |
| 10-Year EBITDA | $(1,234) | $12,405M | 83.6% |
The DDM values a company based on its expected future dividend payments. We used two approaches:
EPV assesses a company's value based on its current normalized earnings power, assuming no growth.
| EPV Component | Value |
|---|---|
| Normalized Earnings | $2,053M |
| Discount Rate (WACC) | 5.7% - 4.6% |
| Enterprise Value | $35,712M - $44,638M |
| Net Debt | $15,420M |
| Equity Value | $20,292M - $29,218M |
| Outstanding Shares | 50M |
| Fair Value | $406 - $585 |
| Selected Fair Value | $495.60 |
| Metric | Value |
|---|---|
| Market Capitalization | $2837M |
| Enterprise Value | $18257M |
| Trailing P/E | 1.79 |
| Forward P/E | 2.68 |
| Trailing EV/EBITDA | 7.10 |
| Current Dividend Yield | 148.03% |
| Dividend Growth Rate (5Y) | -22.35% |
| Debt-to-Equity Ratio | 6.51 |
To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:
| Valuation Method | Weight | Weighted Value |
|---|---|---|
| Discounted Cash Flow (10Y) | 30% | $82.54 |
| Discounted Cash Flow (5Y) | 25% | $41.76 |
| Dividend Discount Model (Multi-Stage) | 20% | $20.15 |
| Dividend Discount Model (Stable) | 15% | $28.92 |
| Earnings Power Value | 10% | $49.56 |
| Weighted Average | 100% | $222.92 |
Based on our comprehensive valuation analysis, Alliance Data Systems Corp's weighted average intrinsic value is $222.92, which is approximately 292.5% above the current market price of $56.80.
Key investment considerations:
Given these factors, we believe Alliance Data Systems Corp is currently significantly undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.