Global electronic payment processor – Total System Services Inc. (TSS) is scheduled to release fourth-quarter 2014 financial results after the closing bell on Jan 27, 2015.
In the last reported quarter, the company delivered positive earnings surprise of 10.2%, although the four-quarter trailing average miss is pegged at 1.1%. Let us see how things are shaping up for this announcement.
Earnings Whispers
Our proven model shows that Total System is not likely to beat earnings as it lacks the required combination of two key components.
Zacks ESP: The Most Accurate estimate of 50 cents per share is at par with the Zacks Consensus Estimate of Total System. Hence, the Expected Surprise Prediction or Earnings ESP, which is the difference between the aforementioned estimates,is 0.00%.
Zacks Rank: Total System has a Zacks Rank #4 (Sell). We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) from going into an earnings announcement.
The combination of Total System’s Zacks Rank #4 and 0% ESP deter us from being confident of an earnings beat.
Factors Affecting Results
Total System is well-cushioned with a strong network of alliances and operating cash flow, which rebounded by surging 26.9% year over year to $390.1 million in the first nine months of 2014. Ample free cash flow also paves the way for investments in technology upgrades and core growth. Double-digit growth in transaction volumes as well as improved accounts on file also showcase stability.
In spite of improved revenues, Total System’s operating margins are pressured by higher operating and acquisition expenses. As a result, total operating expenses rose 24.5% year over year in first nine months of 2014, while operating margins declined 150 basis points to 17%.
Moreover, debt obligations, difficult comps, expense flow and minimal synergies from NetSpend in 2014 have also compelled management to lower its adjusted EBITDA guidance from the prior growth range of 17–20% to a 13–15% band or about $708–$718 million in 2014. Even the growthprojection of operating earnings per share in the band of 10–12% for 2014 is noticeably lower than 18% growth recorded in 2013.
Pressurized margins and debt obligations deterred share buybacks in third-quarter 2014, while lack of repurchases in the fourth-quarter may further hinder earnings per share growth. Presently, we would like to stay at the periphery regarding the stock.
Other Stocks to Consider
Here are some other 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:
Ladder Capital Corp. (LADR) has Earnings ESP of +3.45% and a Zacks Rank #1 (Strong Buy).
MarketAxess Holdings Inc. (MKTX) hasEarnings ESP of +3.85% and a Zacks Rank #1.
CIT Group Inc. (CIT) has Earnings ESP of +5.38% and a Zacks Rank #2 (Buy).
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