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Will Higher Revenues Aid Total System (TSS) Q3 Earnings?

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Total System Services, Inc.’s third-quarter results, scheduled for Oct 24, are expected to witness revenue gains from its Merchant segment on the back of its robust distribution network, product portfolio, channel diversification and fast-growing integrated channel. The Zacks Consensus Estimate for revenues from this segment stands at $608 million, which translates into year-over-year growth of 67.5%.

Total Accounts on File, a major revenue driver of the company’s Issuer Solutions segment,  increased for the first half of 2017 and the third quarter is not expected to be any different. The Zacks Consensus Estimate for total AoF is 786 million, reflect an increase of 4.1% year over year.

We also expect to see higher revenues from the company’s Netspend segment (acquired in 2013) which has been seeing revenue growth for many quarters in a row. The Zacks Consensus Estimate for revenues of this segment is $166 million, which reflects a year-over-year increase of 5.7%.

We also expect the company to generate strong cash flow like it has been doing for the past many quarters. The company will be using a substantial amount of cash to pay down the debt, because of which it has put on halt its share buyback activity, which otherwise would have added to its bottom line.

Also, the company will be commencing some investments in the last-half of the year to enhance its infrastructure, longer-term product offerings and technological capabilities. These investments will shore up expenses before contributing to overall results.

Here is what our quantitative model predicts:

Total System does not have the right combination of the two main ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

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Zacks ESP: The Earnings ESP for Total System is -0.5%.

Zacks Rank: Total System carries a Zacks Rank #2, which increases the predictive power of ESP. But we also need to have a positive ESP to be confident of a positive earnings surprise.

Nonetheless, the Zacks Consensus Estimate for earnings of 81 cents reflects a 13.9% improvement on a year-over-year basis. The Zacks Consensus Estimate for sales of $1.2 billion indicates 54% growth from the prior-year quarter.

Total System Services, Inc. Price and EPS Surprise

Stocks Worth a Look

Here are some companies worth considering from the same space as our model shows that these possess the right combination of elements to beat estimates this quarter:  

Visa Inc. (V - Free Report) will report third-quarter 2017 earnings results on Oct 25. The company has an Earnings ESP of +1.05% and carries a Zacks Rank #2.  You can see the complete list of today’s Zacks #1 Rank stocks here.

Voya Financial, Inc. (VOYA - Free Report) has an Earnings ESP of +1.67% with a Zacks Rank of 3. The company is expected to report third-quarter earnings results on Oct 31.

Envestnet, Inc (ENV - Free Report) has an Earnings ESP of +1.45%. This Zacks #1 Ranked company is expected to report third-quarter earnings results on Nov 6.

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