DST Systems Inc.  is set to report first-quarter 2017 results on Apr 27. Last quarter, the company posted a positive earnings surprise of 9.93%. Let's see how things are shaping up for this announcement.

Factors at Play

DST Systems reported splendid fourth-quarter results, wherein earnings and revenues both surpassed the Zacks Consensus Estimate. Moreover, both revenues and earnings grew year over year.

We continue to believe that DST Systems’ business volume and massive scale of operation in Financial Services will attract new customers. We also expect steady contributions from acquisitions to support revenue growth. Continued share buybacks and dividend payments are other encouraging factors.

We feel DST Systems has a strong business model. The company generates recurring revenues and a good percentage of its business comes from long-term contracts with its customers. The company has developed the fee structure on a per-account and per-transaction basis, which indicates the fixed and flexible portion of revenues with respect to each client. Financial services companies that use DST Systems’ software to service multiple such clients generate incremental revenues with each additional client and/or transaction.

The model ensures a minimum revenue level even when there are limited transactions. However, in the current environment, when market conditions are improving, it will generate additional revenues due to a higher number of transactions.

Nonetheless, persistent decline in registered accounts, ongoing consolidation in the U.S. financial services market and stiff competition from International Business Machines Corporation (IBM Quick QuoteIBM - Free Report) and Fiserv Inc. might put its fundamentals under pressure. Moreover, a high debt burden remains a major concern for the company.

DST Systems, Inc. Price and EPS Surprise

DST Systems, Inc. Price and EPS Surprise | DST Systems, Inc. Quote

Earnings Whispers

Our proven model does not conclusively show that DST Systems will beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: DST Systems’ ESP is 0.00% since both the Most Accurate estimate and the Zacks Consensus Estimate stand at $1.27 per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter

Zacks Rank: DST Systems’ Zacks Rank #1 when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Other Stocks to Consider

Here are a couple of stocks you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Seagate Technology plc (STX Quick QuoteSTX - Free Report) , with an Earnings ESP of +3.77% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Western Digital Corporation (WDC Quick QuoteWDC - Free Report) , with an Earnings ESP of +2.16% and a Zacks Rank #1.

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