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We expect Alliance Data Systems Corporation (ADS - Analyst Report) to beat expectations when it reports fourth quarter and full year 2012 results on Jan 31.

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: .Alliance Data currently has an Earnings ESP (Read: Zacks Earnings ESP: A Better Method) of +2.38%, as the Most Accurate Estimate is at $1.72 and the Zacks Consensus Estimate is at $1.68.

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

The combination of Alliance Data’s Zacks Rank # 3 (Hold) and +2.38% ESP makes us very confident regarding a positive earnings beat on Jan 31.

What is Driving the Better Than Expected Earnings?

Continued focus on strategic acquisitions to grow inorganically, national rollout of its dotz coalition loyalty program in Brazil, consistent share buybacks and inking long-term deals are expected to drive positive earnings surprise in the upcoming quarter.

The recent acquisition of Hyper Marketing will not only procure Epsilon brands including Mars, Unilever, The Home Depot, and Kellogg in its portfolio but also enhance Epsilon’s digital capabilities to further develop primary digital channels. The company also has a new $400 million share buyback program under its authorization.

The positive trend is seen in the trailing four-quarter average surprise of 7.91%, which included a 2.35% positive surprise in the last reported quarter. The better-than-expected results came on the back of strong performances across all segments.

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:

Global Payments Inc. (GPN - Snapshot Report), Earnings ESP of +1.14% and Zacks Rank #2 (Buy).

Mastercard Incorporated (MA - Analyst Report), Earnings ESP of +0.84% and Zacks Rank #2 (Buy).

Visa Inc. (V - Analyst Report), Earnings ESP of +1.12% and Zacks Rank # 3 (Hold).
 

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