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Total System (TSS): Will It Beat Q1 Earnings Estimates?

MCO DFS TSS WU

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Payment processor and financial services provider, Total System Services, Inc. (TSS - Free Report) , is scheduled to release first-quarter 2017 financial results, after the closing bell, on Apr 25.

Last quarter, Total System surpassed the Zacks Consensus Estimate by 6.2%. Moreover, the company posted a positive earnings surprise in three out of the last four quarters, with an average beat of 3.73%.  Let’s see how things are shaping up for this announcement.

Factors at Play

We expect to see higher revenues from the company’s Netspend segment (acquired in 2013) which has been growing revenue from the past 20 consecutive quarters.

The company’s Merchant segment is expected to see revenue gains on the back of its robust distribution network, product portfolio, channel diversification and fast-growing integrated channel.

Its international segment is expected to see higher contribution from China Union Pay, which is growing strongly. This growth is expected to continue due to the expansion of this business in the Chinese card processing market. The segment will also see accretion to top line on account of improved client sales’ pipeline.

We also expect the company to generate strong cash flow like it has been doing for the past many quarters. Though the company has been using a substantial amount of capital for share buyback, we expect limited repurchase of shares in the to-be-reported quarter as it remains committed to use cash to pay off debt shouldered in order to fund the acquisition of TransFirst. A relatively lesser amount of share buyback would lead to lower accretion to the bottom line.

Also, foreign exchange exposure might dent the company’s earnings. In the last reported quarter, currency movement had negatively impacted earnings per share by 3 cents.

Earnings Whispers

Our proven model does not conclusively show that Total System is likely to beat on earnings this quarter. That is because a stock needs to have both a positive Earnings ESP  and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Total System has an Earning ESP of 0.00%. This is because the Most Accurate estimate stands at 73 cents per share, which is in line with the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Though Total System carries a Zacks Rank #2 (Buy), a 0.00% Earnings ESP makes our surprise prediction difficult. We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks

Here are some companies from the finance sector that you may consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:  

Western Union Co. (WU - Free Report) will report first-quarter 2017 earnings results on May 2. The company has an Earnings ESP of +2.56% and a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Discover Financial Services (DFS - Free Report) has an Earnings ESP of +1.41% and a Zacks Rank #3. The company is expected to report first-quarter earnings results on Apr 25.

Moody’s Corp. (MCO - Free Report) has an Earnings ESP of +4.17% and a Zacks Rank #2. The company is expected to report first-quarter earnings results on May 5.

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