Contrasting Alliance Data Systems (NYSE:ADS) & Global Payments (NYSE:GPN)

Alliance Data Systems (NYSE:ADS) and Global Payments (NYSE:GPN) are both business services companies, but which is the better stock? We will contrast the two businesses based on the strength of their dividends, profitability, risk, analyst recommendations, valuation, earnings and institutional ownership.

Earnings and Valuation

This table compares Alliance Data Systems and Global Payments’ top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Alliance Data Systems $5.58 billion 0.39 $278.00 million $16.39 2.75
Global Payments $4.91 billion 10.14 $430.61 million $5.86 28.42

Global Payments has lower revenue, but higher earnings than Alliance Data Systems. Alliance Data Systems is trading at a lower price-to-earnings ratio than Global Payments, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Alliance Data Systems and Global Payments’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Alliance Data Systems 3.41% 40.98% 2.48%
Global Payments 7.79% 6.46% 3.83%

Analyst Ratings

This is a breakdown of current ratings for Alliance Data Systems and Global Payments, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Alliance Data Systems 1 9 7 0 2.35
Global Payments 1 2 27 0 2.87

Alliance Data Systems currently has a consensus price target of $88.43, suggesting a potential upside of 95.99%. Global Payments has a consensus price target of $195.48, suggesting a potential upside of 17.36%. Given Alliance Data Systems’ higher probable upside, analysts plainly believe Alliance Data Systems is more favorable than Global Payments.

Insider and Institutional Ownership

93.9% of Alliance Data Systems shares are owned by institutional investors. Comparatively, 88.0% of Global Payments shares are owned by institutional investors. 2.1% of Alliance Data Systems shares are owned by insiders. Comparatively, 0.9% of Global Payments shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Dividends

Alliance Data Systems pays an annual dividend of $0.84 per share and has a dividend yield of 1.9%. Global Payments pays an annual dividend of $0.78 per share and has a dividend yield of 0.5%. Alliance Data Systems pays out 5.1% of its earnings in the form of a dividend. Global Payments pays out 13.3% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Alliance Data Systems has increased its dividend for 3 consecutive years and Global Payments has increased its dividend for 2 consecutive years. Alliance Data Systems is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Volatility and Risk

Alliance Data Systems has a beta of 2.53, indicating that its share price is 153% more volatile than the S&P 500. Comparatively, Global Payments has a beta of 1.15, indicating that its share price is 15% more volatile than the S&P 500.

Summary

Alliance Data Systems beats Global Payments on 10 of the 17 factors compared between the two stocks.

About Alliance Data Systems

Alliance Data Systems Corporation provides data-driven marketing and loyalty solutions worldwide. It operates through three segments: LoyaltyOne, Epsilon, and Card Services. The company offers a portfolio of integrated outsourced marketing solutions, including customer loyalty programs, database marketing services, end-to-end marketing services, analytics and creative services, direct marketing services, and private label and co-brand retail credit card programs. It also focuses on facilitating and managing interactions between its clients and their customers through various consumer marketing channels, including in-store, online, email, social media, mobile, direct mail, and telephone. The company captures and analyzes data created during each customer interaction, leveraging the insight derived from that data to enable clients to identify and acquire new customers and to enhance customer loyalty. It serves clients across various end-markets, including financial services, specialty retail, grocery and drugstore chains, petroleum retail, automotive, hospitality and travel, telecommunications, insurance, and healthcare. Alliance Data Systems Corporation was founded in 1996 and is headquartered in Plano, Texas.

About Global Payments

Global Payments Inc. provides payment technology and software solutions for card, electronic, check, and digital-based payments. The company operates in three segments: North America, Europe, and Asia-Pacific. It offers authorization services, settlement and funding services, customer support and help-desk functions, chargeback resolution, terminal rental, sales and deployment, payment security services, consolidated billing and statements, and online reporting services. The company also provides an array of enterprise software solutions that streamline business operations of its customers in various vertical markets; and value-added services, such as analytic and engagement tools, as well as payroll services. In addition, it offers credit and debit card transaction processing services for various international card brands, including American Express, Discover Card, JCB, MasterCard, UnionPay International, and Visa; and non-traditional payment methods, as well as certain domestic debit networks, such as Interac in Canada. Further, the company provides e-commerce and omnichannel solutions; and gaming solutions to licensed gaming operators. It serves customers in various industries comprising education, restaurant, event management, hospitality, retail, healthcare, convenience stores and petroleum, professional services, automotive, and lodging. The company markets its products and services through direct sales force, trade associations, agent and enterprise software providers, referral arrangements with value-added resellers, and independent sales organizations in 32 countries of North America, Europe, the Asia-Pacific region, and Brazil. Global Payments Inc. was founded in 1967 and is headquartered in Atlanta, Georgia.

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