What's In Store For TransUnion (TRU) This Earnings Season?

Premium business service company TransUnion (NYSE:TRU) is scheduled to release second-quarter 2016 results after the closing bell on Jul 26. In the last reported quarter, TransUnion’s earnings beat the Zacks Consensus Estimate by a remarkable 20%. The average earnings surprise over the last four trailing quarters is 13.41%.

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

Toward the end of the second quarter, TransUnion acquired Auditz LLC, a healthcare services firm that utilizes sophisticated proprietary technology to help healthcare providers identify and recover payments. Notably, Auditz will bring new capabilities to TransUnion’s healthcare business that will prove to be beneficial to its customers and further enhance its competitive strength and market value proposition. Although the acquisition is not likely to make any significant contribution in the to-be-reported quarter, its impact on attracting potential revenue contribution from other clients is irrefutable.

Also, the company collaborated with FICO and launched FICO Auto Score 9 XT, which utilized TransUnion’s CreditVision data. The new score specifically caters to the auto finance marketplace and includes several innovative features like trended data from TransUnion’s CreditVision.

During the quarter, TransUnion also entered into a partnership with award-winning password manager and leader in online identity management, Dashlane, to create innovative services for its respective customers. The company will focus on credit monitoring, identity and fraud protection, credit information and breaches. TransUnion will also ensure Dashlane expand its distribution through its multiple partner channels in the U.S. and globally.

However, TransUnion’s revenues are vulnerable to macroeconomic conditions such as interest rates, employment levels, consumer confidence, accessibility of affordable credit and capital, inflation and housing demand. Economic recovery has been weak so far and, consequently, consumer spending has been constrained. Factors like these are likely to limit the company’s growth prospects and adversely affect its financials.

TransUnion operates amid stiff competition. Its competitors widely vary according to its business segment, geographical market and the industry vertical that its solutions address. The intense competition restricts the company’s pricing power to some degree. All these issues limit its profitability and are a strain on its bottom line.

The company expects second-quarter revenues to be in the range of $405 million and $410 million. Adjusted EBITDA for the quarter is likely to be in the range $145 million and $150 million, while adjusted earnings are expected to be between 31–33 cents per share.

TRANSUNION Price and EPS Surprise

Earnings Whispers

Our proven model does not conclusively state that TransUnion is likely to beat earnings in the upcoming 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 an earnings beat. This is not the case here as we will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently at 0.00%.

Zacks Rank: TransUnion carries a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of an earnings beat, a 0.00% ESP makes surprise predictions uncertain.

Note that we caution against Sell-rated stocks (Zacks Rank #4 or #5) 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 these have the right combination of elements to post an earnings beat this quarter:

American Campus Communities, Inc (NYSE:ACC) has an Earnings ESP of +1.89% and a Zacks Rank #2. It is scheduled to report on Jul 25.

The Earnings ESP of Gilead Sciences Inc. (NASDAQ:GILD) is +6.91% and it has a Zacks Rank #2. The company is expected to report on Jul 25.

AK Steel Holding Corp. (NYSE:AKS) has an Earnings ESP of +50.00% and a Zacks Rank #2. It is expected to release results on Jul 26.