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What in the Cards for Alliance Data's (ADS) Q3 Earnings?

Alliance Data Systems Corporation ADS is slated to report third-quarter 2020 results on Oct 29, before the opening bell. The company delivered an earnings surprise of 1.09% in second-quarter 2020.

Factors to Note

Reduction in credit sales and fee waivers stemming from the company’s forbearance programs might have impacted the Card Services segment’s third-quarter performance. Notably, this segment generally accounts for a massive chunk of the company’s top-line growth. Evidently, the Zacks Consensus Estimate for third quarter average receivables is $15.9 billion, indicating a decline of 8.7% from the year-ago reported figure.

The Zacks Consensus Estimate for revenues at the Card Services segment is pegged at $884 million, indicating a decline of 25.8% from the prior-year quarter. The consensus estimate for EBITDA at this segment stands at $125 million, suggesting a fall of 61.9% from the year-ago quarter.

Nevertheless, credit sales might have partially benefited from re-opening of most of the company’s retail partner stores by June-end.  However, loss rate is likely to have increased in the to-be-reported quarter.

Moreover, dip in travel-related redemptions owing to the COVID-19 pandemic might have impacted the company’s LoyaltyOne segment. It is also likely to have suffered due to deferred loyalty spending by grocery business clients on account of lesser availability of short-term grocery loyalty programs in market. The divestment of Precima (which contributed significant portion to this segment’s top line) in January of this year and costs associated with it might get reflected in the segment’s to-be-reported quarter’s results. The Zacks Consensus Estimate for third-quarter revenues at this segment is $171 million, indicating a decline of 30.5% from prior-year quarter. Moreover, the consensus estimate for EBITDA stands at $48.6 million, indicating a slump of 16.3% from the year-ago reported number.

Weaker performance at both the segments is likely to have dented the company’s revenues in the to-be-reported quarter. The Zacks Consensus Estimate for third-quarter revenues stands at $1.03 billion, suggesting 28.5% fall from the year-earlier quarter's reported figure.

Further, the company’s might have witnessed increased expenses in the third quarter primarily due to substantial investments made in in data and analytics, and customer-facing digital capabilities. Nevertheless, several cost-cutting initiatives may have partially offset the same. Notably, Alliance Data expects to incur $50 million in additional cost savings in the to-be-reported quarter.

The Zacks Consensus Estimate for earnings per share is pegged at $2.28, indicating a decline 54.9% from the year-ago quarter.

Alliance Data Systems Corporation Price and EPS Surprise

Alliance Data Systems Corporation Price and EPS Surprise

Alliance Data Systems Corporation price-eps-surprise | Alliance Data Systems Corporation Quote

What Our Quantitative Model Predicts

Our proven model does not conclusively predict an earnings beat for Alliance Data this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Earnings ESP: Alliance Data has an Earnings ESP of -7.60%. This is because the Most Accurate Estimate of $2.11 is pegged lower than the Zacks Consensus Estimate of $2.28. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Alliance Data carries a Zacks Rank #4 (Sell).

Stocks to Consider

Some stocks worth considering from the financial transaction services industry with a perfect mix of elements to surpass estimates in the upcoming quarterly releases are as follows:

Cardtronics plc CATM has an Earnings ESP of +18.42% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Global Payments Inc. GPN has an Earnings ESP of +1.29% and a Zacks Rank #3.

Mastercard Incorporated MA has an Earnings ESP of +2.26% and a Zacks Rank of 3.

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Alliance Data Systems Corporation (ADS): Free Stock Analysis Report
 
Mastercard Incorporated (MA): Free Stock Analysis Report
 
Cardtronics PLC (CATM): Free Stock Analysis Report
 
Global Payments Inc. (GPN): 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.

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