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We expect financial transaction service provider Alliance Data System Corporation (ADS - Analyst Report) to beat expectations when it reports third-quarter 2013 results on Oct 17.

Why a Likely Positive Surprise?

Our proven model shows that Alliance Data is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +0.79%. This is noteworthy and a leading indicator of a likely positive earnings surprise.

Zacks Rank #2 (Buy): Note that stocks with a Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings. The sell-rated stocks (carrying a Zacks Rank #4 or 5) should never be considered going into an earnings announcement.  

The combination of a Zacks Rank #2 (Buy) and +0.79% ESP makes us confident about looking for a positive earnings beat by Alliance Data on Oct 17.

What is Driving the Better-Than-Expected Earnings?

Alliance Data remained focused in its national rollout plan of the Dotz coalition loyalty program in Brazil. The loyalty program was expanded into two new markets in Brazil's southern region. The expansion marked the sixth and the seventh market penetration for Dotz.

Recently, it announced a 17% increase in average receivables of the Private Label segment for the third quarter of 2013.

Additionally, Alliance Data’s Retail Service division, Canadian loyalty business and Epsilon have continually been inking long-term deals ensuring steady revenue generation.

Alliance Data delivered positive surprises in 3 of the last four quarters with the highest surprise coming at 4.13% in the second quarter. Solid performances across all segments aided the upside.

Other Stocks to Consider

Alliance Data is not the only firm looking up this earnings season. We also see likely earnings beats coming from these 3 industry peers:

Fiserv, Inc. (FISV - Analyst Report), earnings ESP of +1.99% and a Zacks Rank #1 (Strong Buy).

Global Payments Inc. (GPN - Snapshot Report), earnings ESP of +0.98% and a Zacks Rank #2 (Buy).

American Express Company (AXP - Analyst Report), earnings ESP of +0.82% and a Zacks Rank #2 (Buy).

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