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Can Alliance Data (ADS) Deliver Q3 Earnings Beat on the Trot?

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Can Alliance Data (ADS) Deliver Q3 Earnings Beat on the Trot?

Alliance Data's (ADS) segmental strength is likely to aid third-quarter results.

Alliance Data Systems Corporation ADS is slated to report third-quarter 2018 results on Oct 18 before the market opens. Last reported quarter, the company delivered a positive earnings surprise of 8.68%.  

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

Alliance Data is expected to have delivered another quarter of solid results, riding on segmental strength. The Zacks Consensus Estimate for earnings is pegged at $6.28, increasing 17.4% year over year on 6.5% higher revenues of $2.04 billion.

Card Service — accounting for more than 50% of the company’s revenues — will continue to contribute majorly to the company’s overall performance. Continuous agreements from both new and existing clients are favoring private label card portfolio. This should further lead to a solid performance at Card Receivables segment. The consensus mark for EBITDA is expected to inch up 1.3% to $402 million on 12.6% 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. Also, ramped up promotional activities have possibly helped improve AIR MILES issued in the to-be-reported quarter. The Zacks Consensus Estimate for AIR MILES issued is likely to increase 3.1% in the third quarter.

Thus the consensus mark for EBITDA at LoyaltyOne is expected to rise 27.9% to $78 million on 12.6% higher Card Service revenues of $1.2 billion.

Auto and CRM (Customer Relationship Management) revenues, accounting for almost 50% of Epsilon’s revenues, are predicted to deliver double digit top-line growth. This in turn, should dive Epsilon’s third-quarter results. The Zacks Consensus Estimate for Epsilon revenues is estimated to climb 4.5% year over year to $584 million while EBITDA is projected to improve 4.8% to $131 million.

We expect escalated 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.

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

The company boasts a stellar record of delivering positive surprises in all the last four quarters with an average beat of 11.06%.

Alliance Data Systems Corporation Price and EPS Surprise

Alliance Data Systems Corporation Price and EPS Surprise | Alliance Data Systems Corporation Quote

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.

Earnings ESP: Alliance Data has an Earnings ESP of +0.61%. This is because the Most Accurate Estimate is pegged at $6.32, higher than the Zacks Consensus Estimate of $6.28. 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 sector with the perfect combination of elements to surpass estimates in the next releases are as follows:

Ameriprise Financial, Inc. AMP is set to report third-quarter earnings on Oct 23. The stock has an Earnings ESP of +4.30% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

CNA Financial Corporation CNA is set to report third-quarter earnings on Oct 29. This #2 Ranked stock has an Earnings ESP of +4.19%.

Discover Financial Services DFS has an Earnings ESP of +0.54%. This Zacks #2 Ranked company is set to report third-quarter earnings on Oct 25.

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