Global electronic payment processor – Total System Services Inc. TSS is scheduled to release first-quarter 2015 financial results after the closing bell on Apr 28, 2015.
In the last reported quarter, the company delivered a positive earnings surprise of 10%, while the four-quarter trailing average beat was pegged at 1.9%. 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 43 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 #3 (Hold). This increases the predictive power of ESP. However, we need a positive ESP to be confident about an earnings beat. Hence, the combination of Total System’s Zacks Rank #3 and 0.00% ESP deters us from making a conclusive outcome.
Note that stocks with Zacks Ranks #1 (Strong Buy), #2 (Buy) and #3 have a significantly higher chance of beating earnings.
Conversely, Sell-rated stocks (#4 and 5) should never be considered going into the earnings announcement, especially when the company is witnessing a negative estimate revisions momentum.
Factors at Play
Growth outlook for operating margins appears stressful and indefensible given additional expenses related to acquisitions, higher debt costs, operations as well as loss of revenues from discontinued operations. Lower margins also include the impact of price compression, loss of portfolio sales and currency impact along with continued tepidity in the credit card market.
The temperance in results is also reflected in management’s growth projection of operating earnings per share in the band of 11–13% in 2015, lower than 13.3% growth recorded in 2014. Even revenues are expected to grow by 7–9% in 2015, noticeably lower than 18.5% in 2014.
Nevertheless, Total System is well-cushioned with a strong network of alliances and operating cash flow, which rebounded by surging 23.8% year over year to $560.2 million in 2014. Ample free cash flow also paves the way for investments in technology upgrades, core growth and shareholder return.
Notably, the company deployed 94% of its free cash flow in capital deployment in 2014. Double-digit growth in transaction volumes as well as improved accounts on file also showcase stability. Overall, 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:
Santander Consumer USA Holdings Inc. SC has an Earnings ESP of +4.4% and a Zacks Rank #1.
MasterCard Inc. MA has Earnings ESP of +1.3% and a Zacks Rank #3.
Equifax Inc. EFX hasEarnings ESP of +0.9% and a Zacks Rank #3.
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