Alliance Data Systems Corporation ADS is set to report third-quarter 2017 results on Oct 19, before the market opens. Improving performances across all its segments are likely to drive the company’s bottom line.

Card Receivables, accounting for more than 50% of the company’s revenues, will continue to generate higher yields as Alliance Data has been rapidly growing its private label card portfolio with a number of wins from both the new and existing clients. The Zacks Consensus Estimate for Card Receivables revenues are currently pegged at $1.1 billion, improving 11.8%, while EBITDA is estimated at $440 million, up nearly 33%. Average receivables are estimated at $16.2 billion, increasing 15.7% year over year.

The company continues to witness growth in auto, CRM and data supporting Epsilon segments. The Zacks Consensus Estimate for Epsilon revenues is expected to increase 6.1% year over year to $576 million.

An anticipated 28% lower AIR MILES reward miles redeemed will probably weigh on the AIR MILES revenue in the soon-to-be reported quarter.

Share repurchases must have lent additional support to the bottom line. The Zacks Consensus Estimate for earnings of $5.04 per share reflects a 6.2% year-over-year increase.

However, the company reported delinquency rates, having deteriorated 40 basis points year over year to 5.4% as of Sep 30, 2017.

What our Quantitative Model Predicts

Our proven model does not conclusively show that Alliance Data is likely to beat estimates this quarter. This is because a stock needs to have the right combination of two main ingredients — a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for an earnings beat. But that is not the case here as elaborated below.

Zacks ESP: Alliance Data has an Earnings ESP of -0.60% that suggests the Most Accurate estimate to have been pegged lower than the Zacks Consensus Estimate.

Alliance Data Systems Corporation Price and EPS Surprise

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

Zacks Rank: Alliance Data carries a Zacks Rank #3, which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about a possible earnings surprise. Hence, the stock’s chances of beating estimates are left inconclusive.

We caution against all Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

A few stocks worth considering from the same space with the right combination of elements to come up with an earnings beat this quarter are:

Visa Inc. V is set to report third-quarter earnings on Oct 25. The stock has an Earnings ESP of +0.55% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Total System Services, Inc. TSS has an Earnings ESP of +30.21%. This Zacks #2 Ranked company is set to report third-quarter earnings on Oct 24.

Fidelity National Information Services, Inc. FIS is set to report third-quarter earnings on Oct 31. The #3 Ranked stock has an Earnings ESP of +1.43%.

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