Will Solid Card Service Aid Alliance Data (ADS) Q4 Earnings?
Zacks Investment Research | Feb 03, 2019 09:57PM ET
Alliance Data Systems Corporation (NYSE:ADS) 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 Zacks Investment Research
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