Alliance Data Systems Corporation (NYSE: ADS) shares resumed trading today after the company announced that it had voluntarily dropped its lawsuit against The Blackstone Group (NYSE: BX). The two companies have been involved in a heated lawsuit over a botched acquisition that came amid turmoil in the credit and debt markets. Many shareholders are now speculating that the two have reached an agreement that could help propel shares substantially higher. So, should you look at picking up some Alliance Data shares ahead of any announcement?

Alliance Data, which provides credit card services for retailers, sued Blackstone in an effort to force them to carry out the terms of a May 2007 proposal to buy the company for $81.75 per share ($6.4 billion). The deal fell apart as funding for private equity became more expensie amid turmoil in the debt markets. Blackstone argued that the operational and financial burdens on the company could not be reasonably assumed given these new developments. However, the private equity firm did say that it was committed to working toward the closing of its acquisition of the company.

Alliance Data Systems is currently trading at $55.06, which is substantially lower than the initial $81.75 per share buyout price. The fact that Alliance Data dropped the lawsuit suggests that they were able to work out some kind of an agreement with Blackstone that could resolve the situation. And finally, given the fact that the private equity firm was reportedly looking toward closing the acquisition, that seems to be the most likely conclusion. However, it is highly unlikely that the acquisition will close for the original $81.75 given the deteriorations in the credit market and debt markets.

So, what is a fair valuation? Well, Alliance Systems recently posted a 14% drop in earnings after losses from a business unit sale and from its failed buyout. However, revenues were up about 15% to $602.7 million when estimates were looking from $601 million. Meanwhile, the company maintained that it could generate double-digit organic growth in both operating and adjust EBITDA. It was upgraded shorly thereafter by several analysts and has since risen from $39 per share to its current levels. Many now peg its value closer to $65 to $70 in the event of a buyout - still a healthy premium to the current price.

In the end, Alliance Systems appears to be heading towards a resumed buyout but it still remains very questionable. The valuation in the buyout could be dropped to $65 to $70 per share and investors must multiply that by the probability of a buyout in order to determine how much they’d be willing to pay now. Regardless, this is definitely a stock that it worth watching!

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Tiffany & Co. (NYSE: TIF) shares rose over five percent in today’s trading after it boosted its fiscal 2008 earnings forecast above its two previous forecasts and analyst estimates. The retailer now expects a rise of at least 10% in its worldwide sales based on high-single-digit percentage increases in U.S. retail sales. This took Wall Street by surprise given the company’s recent cut in its full-year earnings forecast after a drop in U.S. sales hit overall same-store sales growth amid a slowdown in consumer spending. So, is Tiffany & Co. a stock that you should consider for your portfolio?

Chairman and chief executive Michael Kowalski noted that sales improved modestly in January month-over-month thanks in some part to continued strength in Europe and the Asia-Pacific region outside of Japan. Consequently, the company is looking to see modest growth in the United States while planning for continued healthy international sales growth throughout the year. Some are insisting, however, that consumer spending in high-end discretionary purchases like Tiffany & Co.’s products may be the next to fall after the apparel industry’s poor results yesterday.

So, will the economy eventually weigh on this company? Well, a recent report by the Federal Reserve showed an abrupt slowdown in consumer credit card borrowing while delinquencies on credit cards continue to rise. Furthermore, recent reports by MasterCard have indicated that many consumers are switching their spending from discretionary items like appliances and jewelry to staples like gas and groceries. These are all clearly bad trends for Tiffany & Co., which relies on such discretionary spending on the high-end in order to jump their sales. This has already affected countless retailers and even some other luxury players, which suggests that Tiffany & Co. is not immune to problems.

In the end, it will be interesting to see if Tiffany & Co. can avoid the problems facing its neighbors and perhaps even stave off any marginal U.S. results in the future with strong international demand. Regardless, this is definitely an interesting company that is worth watching since it could end up outperforming amid larger economic weakness.

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Walgreen Company (NYSE: WAG) is quickly becoming a fundamentalist favorite with its attractive valuation and strong growth amid the economic slowdown. Shares in the drugstore chain had been shot down from their highs of $49.10 to around $32.50 before rebounding to the $35.43 level today. Many analysts believe that the company may be able to sidestep most of the economic turmoil facing other retailers, but the fact that it resides in the category means it will be available on the cheap. So, should you look at adding Walgreens to your portfolio?

Walgreens is currently trading at just 17.5x earnings with a PEG of around 1.17, which is among the lowest valuations in its industry. Meanwhile, the company beats its competition with better gross and operating margins than the industry by around 2-3 percent on both sides. Notably, the company has also had an earnings surprise for three out of the last four quarters, which is what really matters for shareholders. And finally, the drugstore’s balance sheet is also well capitalized with low debt and extra cash.

Walgreens recently reported strong sales in January, which relieved many investors worried about decreased consumer spending. The company noted that same-store sales (the key measure in retail) were up 3.8% while total sales increased 9.6% for the month. Walgreens has recently been trying to increase its sales by adding more high value products and services with its DHL partnership and ink cartridge refilling initiatives. Investors can expect more strong growth from the company going forward.

Walgreens also announced that it opened 39 new stores in January, including two relocations and four closed stores. Management has stated in the past that they are committed to an 8% annual store growth rate in 2008 with 550 new stores opening. More, they expect to open around 600 new stores in 2009 and continue until reaching their U.S. plateau of 13,000 stores. Meanwhile, the company has been expanding abroad after they announced a purchase of 20 Puerto Rico stores. These increases all point to a faster growth story.

In the end, Walgreens is a quickly growing company that appears to be trading at a relatively cheap level thanks to a slowdown in the retail sector. The specialty pharmaceutical retailer segment continues to grow at a solid rate and investors should consider picking up shares while they are cheap. Combined, these factors make WAG a stock worth watching!

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