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Will Strong Segments Aid Alliance Data's (ADS) Q2 Earnings?

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Alliance Data Systems Corporation is slated to report second-quarter 2018 results on Jul 19, before the market opens. Last reported quarter, the company delivered a positive earnings surprise of 25.20%.  

Let’s see, how things are shaping up for this announcement.

Card Service — accounting for more than 50% of the company’s revenues — will continue to contribute majorly to the company’s overall performance. Private label card portfolio gains strength on a number of wins from both new and existing clients. This upside is likely to support a solid performance at Card Receivables segment. The consensus mark for EBITDA is expected to increase 4.9% on 14.4% higher Card Service revenues.

Alliance Data reported 12% growth in year-over-year change with respect to average receivables for the second quarter of 2018.

We expect a rise in operating expenses, attributable to the company’s strategic initiatives including expansion efforts as well as higher cost of operations plus an increased general and administrative expense. This in turn, might restrict operating margin growth.

Given a heightened promotional activity, AIR MILES issued are likely to have improved in the to-be-reported quarter. The Zacks Consensus Estimate for AIR MILES issued is likely to inch up 0.4% in the second quarter.

Alliance Data estimates BrandLoyalty (having suffered last year) to have delivered solid double-digit growth in the second quarter. LoyaltyOne should continue to benefit from BrandLoyalty, driven by growth across Europe, Asia, the United States as well as the company’s expansion efforts in Canada.

Strategic shift from lower profitability agency business should likely aid Epsilon segment in the to-be-reported quarter. Management continues to anticipate improvement in auto, CRM (Customer Relationship Management) and data supporting Epsilon segments. The Zacks Consensus Estimate for Epsilon revenues is projected to ascend 2.2% year over year to $556 million while EBITDA is estimated to climb 2.8%.

A lower tax incidence owing to the tax reform, which dropped the tax rate, as well as share buybacks have probably boosted the bottom line.

The consensus mark for earnings is pegged at $4.68 on revenues of $1.92 billion, reflecting a respective increase of 21.9% and 5.2% year over year.

The company boasts a stellar track record of delivering positive surprises in all the last four quarters with an average beat of 9.69%.

Alliance Data Systems Corporation Price and EPS Surprise

What the Quantitative Model States

Per our proven model, Alliance Data is likely to beat on earnings this quarter to be reported. This is because the stock has the right combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Zacks ESP: Alliance Data has an Earnings ESP of +0.37%. This is because the Most Accurate estimate is pegged at $4.69, higher than the Zacks Consensus Estimate of $4.68. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: Alliance Data carries a Zacks Rank #3, which increases the predictive power of ESP.

Conversely, the Sell-rated stocks (#4 or 5) should never be considered going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Some other stocks worth considering from the finance transaction service industry with the perfect combination of elements to surpass estimates in the next releases are as follows:

Visa Inc. (V - Free Report) is set to report third-quarter fiscal 2018 earnings on Jul 25. The stock has an Earnings ESP of +1.44% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

WEX Inc. (WEX - Free Report) is set to report second-quarter earnings on Jul 26. This #2 Ranked stock has an Earnings ESP of +0.74%.

Fidelity National Information Services, Inc. (FIS - Free Report) has an Earnings ESP of +0.21%. This #3 Ranked company is set to report second-quarter earnings on Jul 31.

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