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Will Solid Card Service Aid Alliance Data (ADS) Q4 Earnings?

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Alliance Data Systems Corporation (ADS - Free Report) is slated to report fourth-quarter 2018 results on Feb 7, before market open. The company delivered positive surprise in the three reported quarters of 2018.

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

Alliance Data should benefit from strong performance of Card Services 

Card Service — accounting for more than 50% of the company’s revenues — is likely to benefit from continued deal wins from both new and existing clients. This, in turn, should support a solid performance at Card Receivables segment. The consensus mark for EBITDA projects an increase 30% to $405 million on 6.9% higher Card Service revenues of $1.2 billion.

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. Management estimates BrandLoyalty’s revenues to increase significantly in the fourth quarter.

Promotional activities should help improve AIR MILES issued in the to-be-reported quarter. The Zacks Consensus Estimate for AIR MILES issued indicates an increase of 3.5% in the fourth quarter.

Auto and CRM (Customer Relationship Management) revenues, accounting for almost 50% of Epsilon’s revenues, are likely to be solid. However, continued weakness in certain Epsilon product offerings might weigh on its performance. The Zacks Consensus Estimate for Epsilon revenues projects a decline of 1.2% year over year to $629 million while EBITDA is expected to decline 1.3% to $157 million.

Management expects weakness in Epsilon to put pressure on the top line. The Zacks Consensus Estimate for revenues indicates a 0.8% year over year increase to $2.1 billion.

However, expenses are likely to increase due to strategic initiatives including expansion efforts, thus restricting operating margin growth.

Share buybacks are likely to boost the bottom line. The Zacks Consensus Estimate for earnings is pegged at $7.01, indicating an increase of 12% year over year

What Our Quantitative Model States

Per our proven model, Alliance Data is likely to beat on earnings in 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.

Earnings ESP: Alliance Data has an Earnings ESP of +0.10%. This is because the Most Accurate Estimate is pegged at $7.02, higher than the Zacks Consensus Estimate of $7.01. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Alliance Data Systems Corporation Price and EPS Surprise

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

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 stocks from the finance sector that also have the perfect mix of elements to surpass estimates this time around are as follows:

Willis Towers Watson Public Limited Company (WLTW - Free Report) is set to report fourth-quarter earnings on Feb 7 and has an Earnings ESP of +0.63%. The company carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Radian Group Inc. (RDN - Free Report) has an Earnings ESP of +3.03% and a Zacks Rank of 1. The company is anticipated to release fourth-quarter earnings on Feb 8.

AerCap Holdings N.V. (AER - Free Report) has an Earnings ESP of +6.84% and a Zacks Rank #2. The company is slated to announce fourth-quarter earnings on Feb 14.

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