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Earnings ESP

As the U.S. enters the 14th day of a partial government shutdown from a budget deadlock, the entire world is awaiting a last-minute deal to end the debt ceiling stalemate in order to avert the risks of a sovereign downgrade and a global financial market crash. With furloughs of 350,000 federal workers, each week of the government shutdown is estimated to impair annualized economic growth of an already-volatile economy by 0.12 percentage points.
 
Amid such precarious conditions, most companies in the Business Services industry would aim to reduce their spending, until at least a clear picture of the economy unfurls. The primary growth drivers in this highly fragmented industry involve a healthy economy with a decent job growth, higher disposable income and new business arrangements. An ideal mix of services, effective marketing strategies and ability to retain and attract new customers serve the perfect recipe for profitability for most of these companies.
 
The current market conditions remain unfavorable for the industry as budgetary constraints curtail discretionary spending, reducing marketing expenses and deferring new business initiatives. Concurrently, most companies in the industry would prefer to hold their budgetary strings and wait until the storm is over.
 
Given this scenario, it might be a good idea to zero-in on a handful Business Services stocks that are poised to beat earnings estimates this quarter. An earnings surprise should help these stocks outperform in the near term, and possibly outperform their peers.
 
How to Pick?
 
Amid a diverse range of companies in the Business Services arena, picking the right stock for your portfolio could appear to be a colossal task. An easy way to narrow down the list is to look at stocks that have a solid Zacks Rank and a favorable Zacks Earnings ESP.
 
Earnings ESP is our proprietary methodology for determining which stocks have the best chance to surprise with their next earnings announcement. The Earnings ESP shows the percentage difference between the Most Accurate Estimate and the Consensus.
 
The combination of a positive to neutral Zacks Rank-- Zacks Rank #1 (Strong Buy) or #2 (Buy) or #3 (Hold)-- and a positive Earnings ESP, is usually a harbinger of earnings beat and serves a perfect success formula on a platter in this challenging macroeconomic environment. For investors seeking to benefit by applying this strategy to their portfolios, we have mentioned three Business Services stocks below which match these criteria, and thus may be the potential winners this earnings season:
 
ManpowerGroup Inc. : Headquartered in Milwaukee, Wis., ManpowerGroup provides workforce solutions and services through a network of approximately 3,500 offices in 80 countries across various industry sectors, and small and medium-sized enterprises. The company specializes in temporary and permanent recruitment, career management, outsourcing and HR consulting services.
 
The company is anticipating strong quarterly earnings, which is expected to be up 36.87% year over year with Zacks Consensus Estimate being pegged at $1.08. Analysts have been moving their quarterly and full year estimates higher of late, further suggesting a solid earnings momentum in the imminent quarters.
 
ManpowerGroup currently carries Zacks Rank #1 along with an Earnings ESP of +2.78%. The company is expected to report its third quarter 2013 results before the opening bell on Oct 21.
 
McGraw Hill Financial, Inc. : N.Y.-based McGraw Hill offers credit ratings, benchmarks, and analytics to capital and commodity markets across the globe that empowers clients with essential intelligence to mitigate risk and identify opportunities to grow. The company houses some of the most iconic brands in finance and business that include Standard & Poor’s Ratings Services, S&P Capital IQ, S&P Dow Jones Indices, Platts, J.D. Power, and McGraw Hill Construction.
 
The company has a long-term earnings expectation of 17.2%. Analysts have been moving their full year estimates higher for the stock, further implying a healthy earnings momentum in the imminent quarters.
 
McGraw Hill currently has Zacks Rank #2 along with an Earnings ESP +3.90%. The company is expected to report its third-quarter 2013 results before the market opens on Oct 22.
 
Fiserv, Inc. : Headquartered in Brookfield, Wis., Fiserv offers global technology services to the financial services industry. The company provides integrated technology and services for more than 16,000 clients worldwide, including banks, credit unions and thrifts, billers, mortgage lenders and leasing companies, brokerage and investment firms and other business clients.
 
The company is anticipating strong third quarter earnings, which is expected to increase 19.2% year over year with Zacks Consensus Estimate being pegged at $1.51. Analysts have revised their quarterly and full year estimates upward, which further signify a solid earnings momentum for the company.
 
Fiserv currently has Zacks Rank #1 along with an Earning ESP of +1.99%. The company is expected to report its third-quarter 2013 results after the closing bell on Oct 29.
 
Moving Forward
 
The ramifications of a potential crisis due to a debt-ceiling impasse may severely affect the economy unless a balanced fiscal policy is eked out. As the U.S. stocks look for a survival strategy, a sneak peek to the space for some possible outperformers backed by a solid Zacks Rank and a positive Zacks Earnings ESP could be a great idea for investors looking to profit this earnings season.

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