Will Total System (TSS) Miss Estimates This Earnings? - Analyst Blog

Global electronic payment processor – Total System Services Inc. TSS is scheduled to release its first-quarter 2014 financial results after the closing bell on Apr 22.

In the last reported fourth-quarter 2013, the company delivered a 2.2% negative earnings surprise, while the four-quarter trailing average beat is pegged at mere 0.02%. Let's see how things are shaping up for this announcement.

Factors that Seek Attention

Total System benefits from a diversified portfolio, strategic acquisitions, alliances and technical competence – factors that are expected to consistently drive long-term growth. However, a decelerated capital deployment and a tepid earnings guidance restricts the desired upside from current levels in near future.

Growth outlook for operating margins in 2014 appears stressful and indefensible given additional expenses related to the NetSpend acquisition. Operating margins also underperformed the guidance in 2013. This is also reflected in management's growth projection of operating earnings per share in the band of 11–13% in 2014, which is noticeably lower than 18% growth recorded in 2013.

Meanwhile, the hike in total debt ($1.46 billion at 2013-end against $202.2 million at 2012-end) also augments borrowing costs, further deteriorating the debt leverage. This, along with lower cash flow outlook, deters share buybacks, overall raising caution regarding an earnings beat.

Earnings Whispers

Our proven model shows that Total System is unlikely to beat earnings as it lacks the required combination of two key ingredients.

Zacks ESP: Total System has a negative Zacks ESP. That is because Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate of 39 cents per share and the Zacks Consensus Estimate of 40 cents, is -2.5%.

Zacks Rank: Total System has a Zacks Rank #3 (Hold). Note that stocks with Zacks Rank #1, 2 and 3 have significantly higher chances of beating earnings. Sell-rated stocks (#4 and 5) are kept under the radar and are never considered going into the earnings announcement. 

The combination of Total System's Zacks Rank #3 and -2.5% ESP deter us from being confident of an earnings beat on Apr 22.

Other Stocks to Consider

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

Lazard Ltd. LAZ, earnings ESP of +1.8% and a Zacks Rank #1 (Strong Buy).

Portfolio Recovery Associates Inc. PRAA, earnings ESP of +2.33% and a Zacks Rank #2 (Buy).

CBOE Holdings Inc. CBOE, earnings ESP of +3.70% and a Zacks Rank #3 (Hold).