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Alliance Data (ADS): Can Q1 Earnings Pull Off a Surprise?

Alliance Data Systems Corporation ADS is scheduled to report first-quarter 2016 results before the opening bell on Apr 21. In the last quarter, this company delivered a 0.78% positive earnings surprise. Let’s see how things are shaping up for this announcement.

Factors Influencing this Past Quarter

We expect the company’s performance to have benefitted from strategic acquisitions, that of Conversant in particular. The Card Services business is likely to have seen another solid quarter driven by compelling product offerings, that in turn should boost the top line. Brand Loyalty is also expected to deliver decent results.

Share repurchases in the quarter should aid the bottom line. However, the company estimates foreign exchange impact of about 10 cents to weigh on its results.

The company expects 8% growth in both revenues to $1.72 billion and core earnings per share (EPS) to $3.93. On a reported basis, both revenues and core EPS are expected to improve 5% to $1.68 billion and $3.83, respectively.

With respect to the surprise trend, Alliance Data has surpassed expectations in each of the last four quarters, with an average beat of 2.27%.

The company’s share price has been on an uptrend over the last few days. We wait to see how the stock reacts to the quarter’s results.

Earnings Whispers

Our proven model does not conclusively show that Alliance Data will beat the Zacks Consensus Estimate in the first quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. But this is not the case here as elaborated below.

Zacks ESP: Alliance Data's Most Accurate estimate is pegged at $3.42 per share, which is below the Zacks Consensus Estimate of $3.47. The Earnings ESP is thus -1.44%.

Zacks Rank: Alliance Date has a Zacks Rank #3, which increases the predictive power of ESP. However, a negative ESP makes surprise prediction difficult.

The Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

Stocks to Consider

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

Equifax Inc EFX has an Earnings ESP of +1.75% and a Zacks Rank #2. The company is scheduled to release first-quarter earnings results on Apr 27.

Envestnet, Inc ENV has an Earnings ESP of +30% and a Zacks Rank #3. The company is expected to report its first-quarter earnings results on May 5.

Fidelity National Information Services, Inc FIS has an Earnings ESP of +2.70% and a Zacks Rank #3. The company is expected to release first-quarter earnings results on May 3.

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EQUIFAX INC (EFX): Free Stock Analysis Report
 
FIDELITY NAT IN (FIS): Free Stock Analysis Report
 
ALLIANCE DATA (ADS): Free Stock Analysis Report
 
ENVESTNET INC (ENV): Free Stock Analysis Report
 
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