DST Systems (DST) Q4 Earnings: What's in Store this Time?

DST Systems Inc.DST is set to report fourth-quarter 2016 results on Jan 26. Last quarter, the company posted a positive earnings surprise of 3.38%. Let's see how things are shaping up for this announcement.

Factors at Play

DST Systems reported mixed third-quarter results, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same.

DST has divested its Customer Communications division to focus on financial services and health care segments. In the second quarter, the company successfully sold its North American Customer Communications division to Broadridge Financial Solutions BR for a cash consideration of $410 million. It also divested its UK Customer Communications Bristol production facilities in exchange for net pretax proceeds of approximately $16 million. The proceeds from the aforementioned divestments will facilitate the acquisition of new businesses in addition to improving flexibility to capitalize on new opportunities in health care and financial services.

However, all of this depends how the company utilizes these funds to drive future growth. Furthermore, loss of revenues due to divestments makes us increasingly cautious about the stock's future performance.

Decreasing organic revenue growth, tough competition from International Business Machines Corporation and Fiserv Inc., and a high debt burden remain concerns.

Nonetheless, we are of the opinion that DST Systems' business volume and massive scale of operation in Financial Services will attract customers. Moreover, we expect steady contributions from acquisitions to support revenue growth in the to-be reported quarter. Continued share buybacks and dividend payments are the other encouraging factors.

DST Systems, Inc. Price and EPS Surprise

DST Systems, Inc. Price and EPS Surprise | DST Systems, Inc. Quote

Earnings Whispers

Our proven model does not conclusively show that DST Systems will beat earnings estimates this quarter. This 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 this to happen. That is not the case here as you will see below.

Zacks ESP: Its Earnings ESP is +4.64% as the Most Accurate estimate of $1.58 per share is pegged higher than the Zacks Consensus Estimate of $1.51 per share. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter

Zacks Rank: DST Systems has a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

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

Seagate Technology plc STX , with an Earnings ESP of +1.87% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

Texas Instruments Incorporated TXN , with an Earnings ESP of +1.24% and a Zacks Rank #3.

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Seagate Technology PLC (STX): Free Stock Analysis Report

DST Systems, Inc. (DST): Free Stock Analysis Report

Texas Instruments Incorporated (TXN): Free Stock Analysis Report

Broadridge Financial Solutions, Inc. (BR): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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