Premium business service company TransUnion TRU is scheduled to release third-quarter 2015 results on Oct 27, after the market closes. The company reported moderate results in the preceding quarter. Let’s see how things are shaping up prior to this announcement.
Factors to Affect Q3 Results
This global risk and information provider is one of the three largest credit reporting agencies in the U.S., followed by Experian and Equifax Inc. After making the fifth-largest debut of the year and raising $764.5 million, the company started trading publicly on Jun 25, 2015.
This was TransUnion’s second attempt to go public, as the previous one was scrapped due to adverse market environment in 2012. Thereafter, the company was taken over by private equity firm Advent International and Goldman Sachs’ private equity unit.
Founded in 1968, the credit reporting bureau has expanded its operations to include 33 countries across Africa, Latin America, Asia and North America. TransUnion provides consumer credit reports and risk scores as well as informational management and data analytics services. Additionally, the company offers credit reports and identity theft protection services through which consumers can view their credit profiles and manage personal information.
TransUnion’s business model contains 3 segments: data, analytics and technology. Its customers are spread across various sectors, including financial services, insurance and healthcare industries. The company deals with 9 of the 10 largest U.S. banks, top 5 credit card issuers, biggest 25 auto lenders and thousands of healthcare providers, as well as federal, state and local government agencies. As a result, the company boasts a stable and consistent revenue stream, having expanded its top line to $1.3 billion from $767 million in just 3 years, beginning 2012.
TransUnion’s first-quarter 2015 revenues grew 16.4% year over year to $353.1 million. Moreover, the company’s revenues for second-quarter 2015 grew 15.6% year over year to $378.5 million. We believe that its top line will continue to experience strong growth in the third-quarter too.
Per research firm IDC, global spending on business analytics services is projected to grow at a compounded average growth rate of about 15% till 2018. Given this expected proliferation of the data and analytics market, and its huge customer base, the company seems well-positioned to ride the growth trajectory in the coming quarter as well.
However, TransUnion lacks strong cash flow management, which led to a build-up in its debt. The company plans to utilize the money raised from the IPO to reduce its debt burden. This ought to relieve its debt servicing burden to some extent, and possibly boost its bottom line.
After reporting moderate results in second-quarter 2015, TransUnion expects revenues for full-year 2015 within roughly $1.455 billion, up 11.5% year over year. Earnings before Interest, Taxes, Depreciation, and Amortization (‘‘EBITDA’’) is expected to be $510 million, 12% higher than the value recorded at the end of full-year 2014. However, TransUnion anticipates unfavorable foreign currency translations to weigh on its revenues and earnings in the quarter under review.
Earnings Whispers
Our proven model does not conclusively state that TransUnion is likely to beat earnings in the upcoming quarter. That 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. That is not the case here as we will see below.
Zacks ESP: TransUnion has an Earnings ESP of 0.00% for the quarter, as the Most Accurate estimate stands in line with the Zacks Consensus Estimate at 28 cents.
Zacks Rank: TransUnion’s Zacks Rank #3, when combined with 0.00% ESP, makes surprise predictions difficult.
Note that we caution against stocks with Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revision momentum.
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:
Alliance Data Systems Corporation ADS, with an Earnings ESP of +1.36% and a Zacks Rank #3.
FTI Consulting, Inc. FCN, with an Earnings ESP of +1.92% and a Zacks Rank #2.
Fiserv Inc FISV, with an Earnings ESP of +3.09% and a Zacks Rank #2.
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