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Will TransUnion (TRU) Pull a Surprise this Earnings Season?

Premium business service company TransUnion TRU is scheduled to release first-quarter 2016 results on Apr 26, after the market closes. In the last reported quarter, TransUnion’s earnings beat the Zacks Consensus Estimate by 4 cents. The average earnings surprise over the last two quarters is 10.12%.

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

Factors to Consider

TransUnion reports its business via three segments: data, analytics and technology. The company’s customers are spread across various sectors including financial services, insurance and healthcare industries. The company deals with nine of the 10 largest U.S. banks, top five credit card issuers, the leading 25 auto lenders and thousands of healthcare providers as well as federal, state and local government agencies.

During the first quarter, TransUnion acquired 71% ownership interest in CIFIN (Central de Informacion Financiera), one of two primary Colombian credit bureaus. The company’s growth strategy involves international expansion in emerging markets with focus on Latin America. This aforesaid equity interest gain is likely to further strengthen TransUnion's Latin America portfolio. Notably, the company is already a market leader in five Central American countries and has a strong presence in Brazil, Chile and Mexico.

Also, the company had launched its Government Information Solutions division in the first quarter. This new division was set up to provide data security and other key solutions to federal, state and local government agencies in the U.S. TransUnion’s solutions help both private and government sector organizations mitigate risk and reduce costs.

However, TransUnion’s revenues remain exposed to overall macroeconomic conditions such as interest rates, employment levels, consumer confidence, accessibility of affordable credit and capital, inflation and housing demand. Economic recovery has been weak so far, and consequently, consumer spending has been limited. Factors like these are likely to limit the company’s growth prospects and adversely affect its financials.

TransUnion operates amid stiff competition. Its competitors widely vary according to its business segment, geographical market and industry vertical that its solutions address. The intense competition restricts the company’s pricing power to some degree. All these issues limit its profitability and put a strain on the bottom line.

The company expects first-quarter revenues to be in the range of $377 million and $380 million. Adjusted EBITDA for the quarter is likely to be in the range $127–$129 million, while adjusted earnings per share is expected to be between 26–27 cents during the quarter.

Earnings Whispers

Our proven model does not conclusively state that TransUnion is likely to beat earnings in the upcoming quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for an earnings beat. This is not the case here as we will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently at 0.00%.

Zacks Rank:TransUnion carries a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of an earnings beat, a 0.00% ESP makes surprise predictions uncertain.

Note that we caution against Sell-rated stocks (Zacks Rank #4 or #5) going into the earnings announcement, especially when the company is seeing a negative estimate revisions.

Stocks to Consider

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

First Bancorp FBP has an Earnings ESP of +12.50% and a Zacks Rank #2. The company is expected to report first-quarter results on Apr 25.

Crane Co. CR has an Earnings ESP of +1.16% and a Zacks Rank #2. The company is expected to report first-quarter results on Apr 25.

Canadian National Railway Company CNI has an Earnings ESP of +1.47% and a Zacks Rank #1. The company is expected to report first-quarter results on Apr 25.

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