For long-term gain, this stock is worth the risk

Alliance is the banking and marketing powerhouse behind many store credit cards and airline frequent-flier programs. Here's why it's a huge buy.

By Jim Cramer Jun 3, 2014 11:37AM

Alliance Data CEO Ed Heffernan / Courtesy of Alliance Data via Facebook, www.facebook.com/alliancedataSo you want revenue growth, do you? Organic, double-digit revenue growth? Are you willing to pay to get it? Are you willing to suffer through short-term pain in order to get long-term gain?


That's the question facing shareholders of affinity credit card and marketing company Alliance Data Systems (ADS). Alliance is the company behind a great deal of store credit card businesses, and it also runs the frequent-flier programs for many airlines. It has a terrific target-marketed business that demonstrably raises the sales of client companies versus those of non-client companies -- by a factor of more than four.


TheStreet.com logoAlliance has also doubled the size of its business over the past six years, and during that time its revenue has grown at a compound rate of 11 percent. What an amazing feat, considering the Great Recession and its aftermath. For 2014, the company is guiding to an outstanding rate of 22 percent revenue growth, with targets for 14 percent core earnings growth and 22 percent core earnings-per-share growth.


But the last quarter missed. There were some lines that were weaker than expected, and they included that for a brand-loyalty program. Still, though, I would say the principal reason Alliance missed was that it has been on a huge hiring spree in order to ramp up many of the programs it has won. It is building U.S. call centers, which are far more expensive than ones in India -- because Ed Heffernan, the CEO, who has generated a 500 percent return in the stock over the past five years, thinks U.S. customers want to talk to Americans. He has demonstrated it time and again.


But 1,000 people cost money. The training costs money. Ed said on "Mad Money" last night that the costs will produce earnings in the second half of the year. Judging by the way the stock was hammered after that last quarter, many shareholders and ex-shareholders don't believe him.


I think he deserves the benefit of the doubt. He has built a genuine powerhouse that does much more for clients than a bank can do. He helps them with marketing, and not just on the banking side. Plus, if you think interest rates are going up on U.S. Treasurys, you can be confident he will make shareholders a tremendous amount of money just playing the rate game on the cards.


To me, Alliance is a huge buy because Heffernan has earned the trust. I feel lonely on this one. But that makes me feel better about it.


Alliance Data is worth the risk, especially as the disappointment is now built into the stock. I'd grab it before it goes higher in the back half of the year.


Jim Cramer headshot


Jim Cramer's Action Alerts Plus: Check out this charitable trust portfolio for the stocks Cramer thinks could be winners.





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16Comments
Jun 3, 2014 1:08PM
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Earnings per share of $7.58 and a per-share price of $256.00.

 

Does not pay a dividend.

 

He's doing it again.

 

 

Jun 3, 2014 1:28PM
Jun 3, 2014 3:56PM
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I realize that these guys "Pump & Dump" and need to write useless articles to do so but if you are really serious about investing just by 25-30 Large Cap Dividend Stocks - The DOW 30 is perfect for long term investors.  Safe - reliable - and productive stocks for the long term. Don't make it complicated ! Only the "Financial Experts" and Brokers stand to make money by your trading in and out of stocks. Don't play their game !
Jun 3, 2014 3:06PM
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Why doesn't this article---written by Cramer with his strong buy endorsement ("... Alliance is a huge buy ...")---have the standard ethical disclaimer as to whether or not the author owns any stock in the mentioned company?
Jun 3, 2014 11:49AM
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There are "several long term gain stocks", and you don't have to put out a lot of risk either...IMO.
Jun 3, 2014 1:30PM
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SO THEY miss, with something north of $7.50 per share...?? And they say trust us, trust US...


Who is "US"..??  Are THEY the ONES getting the $400+ Million in profit this year..??


Because thy aren't paying any to shareholders...

Maybe everybody just wants capital gains....The "oldies" want an income stream... 

Jun 3, 2014 12:47PM
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market top on may 7?   WRONG
ADA AT 256..........WRONG
listening to this carney barker cramer WRONG

Jun 3, 2014 3:33PM
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Yes you are correct, it doesn't....And should have for this type of Article...
Jun 3, 2014 3:34PM
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Lots of promises and maybes flying around Wall Street lately.  The "New" style.  Pig in a poke investing?  Everything will be okay, tomorrow.   JMHO
Jun 3, 2014 7:56PM
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 , one of the 's most ardent policy hawks, said on Tuesday he would favor ending the U.S. central bank's massive bond-buying program in October, but said he does not expect  to start raising interest rates until next year.

"The odds are slim" of a rate rise immediately after the bond-buying program is ended, , president of the Dallas Federal Reserve, told Reuters in a telephone interview.

"I don't expect we'll raise short-term rates this year," said Fisher, who is a voting member of the Fed's policy-setting committee this year.

After years of extraordinary interventions designed to push down borrowing costs and boost hiring and investment, the Fed has been winding down its current program of quantitative easing, known as QE3. Fisher opposed the program from its beginning.

Jun 3, 2014 4:18PM
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We said this morning the goal was to keep things flat to a bit up; manipulators are starting to do their thing again, beware for days to come...We ended the day flat to a bit down, oh well, like we said, they are waking up again...We will see what happens tomorrow.
Jun 3, 2014 1:11PM
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Everyone with a brain stopped at: long term. It's a RIGGED TO FAIL market full of fake money, so a Long term" strategy can only end premature in tragedy. 
One poster was backyard farming yesterday. At least that's a move in the right direction. For all the grubbers holed-up in air conditioned office suites from New York to West Palm to Dallas Fort Worth and Phoenix on up into Chicago... what can you actually do besides press buttons? We are about to find out, aren't we? 
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