TransUnion (TRU) Q1 Earnings: What's In Store This Time?

Premium business service company TransUnion (NYSE:TRU) is scheduled to release first-quarter 2017 results before the market opens on Apr 25. In the last reported quarter, adjusted earnings beat the Zacks Consensus Estimate by 10 cents. The company recorded an average positive earnings surprise of 13.6% over the trailing four quarters, beating estimates thrice.

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

Factors to Consider

TransUnion has an attractive business model with highly recurring and diversified revenue streams, significant operating leverage, low capital requirements and strong and stable cash flows. In addition, the inherent nature and significance of its solutions in customers’ decision-making steps endow it with high customer retention and revenue visibility. Impressively, it deals with the 10 largest U.S. banks, the top five credit card issuers, the biggest 25 auto lenders and thousands of healthcare providers and federal, state and local government agencies. Also, the company keeps making significant investments to modernize its infrastructure and facilitate the seamless transition to the latest Big Data and analytics technologies. This enables TransUnion to expand its business and improve its cost structure.

During the quarter, the company launched its Innovation Lab, to enable lenders accelerate growth, power new models and identify expansion opportunities in real time. Based in TransUnions’ Chicago headquarters, the Innovation Lab gives customers access to the company's proprietary data environment and analytics experts. The company unveiled the Innovation Lab at LendIt USA 2017. It is expected to enhance Trans Unions’ client offerings and customer base, helping the company boost its revenues.

Toward the end of the third-quarter 2016, the company collaborated with Carahsoft Technology Corp., a trusted government IT solutions provider. The deal was expected to help deliver TransUnions’ investigative and risk management tool, TLOxp and its identity authentication and verification solutions to the public sector via Carahsoft's GSA Schedule 70 and NASA Solutions for Enterprise-Wide Procurement contracts. The benefits of this deal are likely to be seen in the to-be-reported quarter.

As emerging market economies continue to develop and mature, the company becomes well positioned to gain from the associated favorable socio-economic trends. Additionally, increased risk of identity theft due to data breaches and higher consumer awareness about the importance and usage of their credit information are propelling the demand for TransUnion’s consumer solutions.

For the first quarter, consolidated revenues are expected to be between $440 million and $445 million. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) is expected to be in the range of $162–$165 million. Adjusted earnings per share are expected to be between 38 cents and 39 cents, an increase of 19–22%.

Earnings Whispers

Despite inherent strengths, our proven model does not conclusively show that TransUnion is likely to beat earnings this quarter as it does not possess the key components. 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. This is not the case here as you will see below:

Zacks ESP: Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. TransUnion's Earnings ESP is 0.00% as the Most Accurate estimate of 36 cents is in line with the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: TransUnion has a Zacks Rank #3. While this increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

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

The Coca-Cola Company (NYSE:KO) has an Earnings ESP of + 2.27% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Eli Lilly and Company (NYSE:LLY) has an Earnings ESP of +1.04% and a Zacks Rank #3.

Lockheed Martin Corporation (NYSE:LMT) has an Earnings ESP of +2.90% and a Zacks Rank #2.

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