Alliance Data (ADS) Q3 Earnings: A Surprise In The Cards?

We expect financial transaction services provider Alliance Data Systems Corporation (NYSE:ADS) to beat expectations when it reports third-quarter results on Oct 20, before the market opens.

Why a Likely Positive Surprise?

Our proven model shows that Alliance Data has the right combination of two key ingredients to beat estimates.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +0.24%. This is because the Most Accurate estimate of $4.18 is pegged higher than the Zacks Consensus Estimate of $4.17. The positive ESP is a meaningful and leading indicator of a likely earnings beat.

Zacks Rank: Alliance Data carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating on earnings. The combination of Alliance Data’s Zacks Rank #3 and +0.24% Earnings ESP makes us reasonably confident of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

Conversely, the Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into an earnings announcement.

What is Driving the Better-Than-Expected Earnings?

Alliance Data has likely witnessed growth, both in terms of revenues and earnings, in the to-be-reported quarter owing to lower yield compression at Card Services segment, lower loss rates and better performance at Epsilon.

Moreover, Alliance Data is likely to report revenue growth at BrandLoyalty in the third quarter. An increase in the number of short-term loyalty programs as well as rapid expansion into new markets like South Africa and New Zealand is expected to have contributed to the upside.

Further, the company’s digital and technology platforms business is anticipated to have experienced revenue growth driven by its automotive platform, Conversant Customer Relationship Management (CRM) and continuous offerings in the digital space.

However, the financial transaction services provider is expected to report a rise in expenses, mainly due to higher cost of operations and increased general and administrative expenses.

With respect to earnings trend, the company delivered positive surprises in three of the last four quarters, with an average beat of 1.39%.

Stocks to Consider

Here are some financial transaction services providers that you may want to consider as these have the right combination of elements to post an earnings beat this quarter:

Cardtronics plc (NASDAQ:CATM) has an Earnings ESP of +3.61% and a Zacks Rank #3. The company is set to report third-quarter earnings on Oct 27.

WEX Inc. (NYSE:WEX) has an Earnings ESP of +0.95% and a Zacks Rank #2. The company is slated to report third-quarter earnings on Oct 27.

FleetCor Technologies, Inc. (NYSE:FLT) has an Earnings ESP of +1.72% and a Zacks Rank #2. The company is expected to report third-quarter earnings on Nov 2.

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