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3 Business Services Stocks Likely to Excel in Q4 Earnings
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The U.S. economy is expected to grow 1.5% in fourth-quarter 2016 due to lower consumer spending and business stockpiling, bringing the overall tally for the year in the vicinity of 1.6%. Yet the quarter witnessed a prolonged stock market euphoria buoyed by some of the sweeping policy changes proposed by President-elect Donald Trump.
The investor-friendly policies that include a pledge to spend $1 trillion in infrastructure projects over a period of 10 years, overhaul of the tax structure to reduce tax burden and regulatory rollbacks are likely to spur higher consumer spending and create about 25 million new jobs over a decade. The International Monetary Fund further anticipates the U.S. GDP to grow at an annualized rate of 2.3% in 2017 and 2.5% in 2018 as Trump’s policies take center stage.
Economic Growth Momentum
The U.S. manufacturing activity accelerated in December as the manufacturing index measured by the Institute for Supply Management increased to 54.7 from 53.2 in November, a precursor to the solid economic growth expected in the near future.
On an average, there were 165,000 job additions per month in the fourth quarter. The unemployment rate rose marginally to 4.7% in December due to higher participation rate of 62.7% as more people looked for work, a clear indication that the economy is indeed improving.
Enjoying the fruits of a resurgent job market, low inflationary pressures and cheaper oil bills, consumer confidence strongly held its fort. The Conference Board Consumer Confidence Index improved to 113.7 in December from 109.4 in November – the highest level reached since 2001 – signifying the optimism about the U.S. economy.
As the companies take stock of the situation and deliberate on their future course of action, let us take a glimpse into how the fourth-quarter earnings season is shaping up so far for the business services sector.
Business Services Sector Performance
About 13% of the total S&P 500 companies in the Business Services sector have reported their earnings results through Jan 13, 2017. With a ‘beat ratio’ of 100.0%, total earnings for these companies are up 21.2% year over year. Revenues increased 9.2% from the year-ago period, with a ‘beat ratio’ of 33.3%.
The entire Business Services sector is expected to perform far better than the overall index. The earnings growth expectation for the sector is 5.6% versus 4.2% for the S&P 500 index. (Read: Solid Start to Q4 Earnings Season).
The primary growth drivers in this highly fragmented industry hinge on a healthy economy with decent prospects for job growth, higher disposable income and new business initiatives. An ideal mix of services, effective marketing strategies and ability to retain and attract new customers make the perfect recipe for profitability for most of these companies.
Given the forecast, it might be a good idea to zero in on a handful of Business Services stocks that are poised to beat earnings estimates this quarter. An earnings surprise should help these stocks outperform in the near term.
How to Pick?
The Business Services sector covers an array of services that include marketing, consulting, staffing, security, telecommunications, Internet services, logistics and waste handling. Amid a diverse range of companies in this 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 favorable Zacks Rank and a positive Earnings ESP with the help of the Zacks Stock Screener.
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 Zacks Consensus Estimate.
The combination of a Zacks Rank #1 (Strong Buy) or #2 (Buy) or #3 (Hold) and a positive Earnings ESP is usually a harbinger of a likely earnings beat.
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 potential winners this earnings season.
ManpowerGroup Inc. (MAN - Free Report) : Headquartered in Milwaukee, WI, ManpowerGroup is one of the global leaders in the employment services industry and has a well-established network of 2,900 offices in 80 countries.
ManpowerGroup has a long-term earnings growth expectation of 13%. The company currently has an Earnings ESP of +0.59% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here. The company is expected to report fourth-quarter 2016 results before the opening bell on Jan 31.
Visa Inc. (V - Free Report) : Headquartered in San Francisco, CA, Visa operates retail electronic payments network worldwide. This industry leader offers a range of branded card payment product platforms, which customers use to develop and offer credit, charge, deferred debit, debit and prepaid payments as well as access cash. It also facilitates commerce through the transfer of value and information among financial institutions, merchants, consumers, businesses and government entities in over 200 countries.
This Zacks Rank #3 stock has a long-term earnings growth expectation of 16.6% and an Earnings ESP of +1.28%. The company is scheduled to report first-quarter fiscal 2017 results after the closing bell on Feb 2. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Alliance Data Systems Corporation : Headquartered in Plano, TX and founded in 1996, Alliance Data is the largest private label credit card processing firm for mid-market specialty retail stores in the U.S. It provides transaction, marketing and credit services in the United States, Canada and internationally.
The company has a long-term earnings growth expectation of 13.7% and a forward PE of 13.5x. Alliance Data currently carries a Zacks Rank #3 along with an Earnings ESP of +0.68%. The company is slated to report fourth-quarter 2016 results before the opening bell on Jan 26.
Moving Forward
As the U.S. stocks continue their steady ascent, sending major indices to record highs with an improving economy, a sneak peek at some possible outperformers backed by a solid Zacks Rank and a positive Earnings ESP could be a great idea for investors to gain from this earnings season.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?
Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>
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3 Business Services Stocks Likely to Excel in Q4 Earnings
The U.S. economy is expected to grow 1.5% in fourth-quarter 2016 due to lower consumer spending and business stockpiling, bringing the overall tally for the year in the vicinity of 1.6%. Yet the quarter witnessed a prolonged stock market euphoria buoyed by some of the sweeping policy changes proposed by President-elect Donald Trump.
The investor-friendly policies that include a pledge to spend $1 trillion in infrastructure projects over a period of 10 years, overhaul of the tax structure to reduce tax burden and regulatory rollbacks are likely to spur higher consumer spending and create about 25 million new jobs over a decade. The International Monetary Fund further anticipates the U.S. GDP to grow at an annualized rate of 2.3% in 2017 and 2.5% in 2018 as Trump’s policies take center stage.
Economic Growth Momentum
The U.S. manufacturing activity accelerated in December as the manufacturing index measured by the Institute for Supply Management increased to 54.7 from 53.2 in November, a precursor to the solid economic growth expected in the near future.
On an average, there were 165,000 job additions per month in the fourth quarter. The unemployment rate rose marginally to 4.7% in December due to higher participation rate of 62.7% as more people looked for work, a clear indication that the economy is indeed improving.
Enjoying the fruits of a resurgent job market, low inflationary pressures and cheaper oil bills, consumer confidence strongly held its fort. The Conference Board Consumer Confidence Index improved to 113.7 in December from 109.4 in November – the highest level reached since 2001 – signifying the optimism about the U.S. economy.
As the companies take stock of the situation and deliberate on their future course of action, let us take a glimpse into how the fourth-quarter earnings season is shaping up so far for the business services sector.
Business Services Sector Performance
About 13% of the total S&P 500 companies in the Business Services sector have reported their earnings results through Jan 13, 2017. With a ‘beat ratio’ of 100.0%, total earnings for these companies are up 21.2% year over year. Revenues increased 9.2% from the year-ago period, with a ‘beat ratio’ of 33.3%.
The entire Business Services sector is expected to perform far better than the overall index. The earnings growth expectation for the sector is 5.6% versus 4.2% for the S&P 500 index. (Read: Solid Start to Q4 Earnings Season).
The primary growth drivers in this highly fragmented industry hinge on a healthy economy with decent prospects for job growth, higher disposable income and new business initiatives. An ideal mix of services, effective marketing strategies and ability to retain and attract new customers make the perfect recipe for profitability for most of these companies.
Given the forecast, it might be a good idea to zero in on a handful of Business Services stocks that are poised to beat earnings estimates this quarter. An earnings surprise should help these stocks outperform in the near term.
How to Pick?
The Business Services sector covers an array of services that include marketing, consulting, staffing, security, telecommunications, Internet services, logistics and waste handling. Amid a diverse range of companies in this 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 favorable Zacks Rank and a positive Earnings ESP with the help of the Zacks Stock Screener.
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 Zacks Consensus Estimate.
The combination of a Zacks Rank #1 (Strong Buy) or #2 (Buy) or #3 (Hold) and a positive Earnings ESP is usually a harbinger of a likely earnings beat.
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 potential winners this earnings season.
ManpowerGroup Inc. (MAN - Free Report) : Headquartered in Milwaukee, WI, ManpowerGroup is one of the global leaders in the employment services industry and has a well-established network of 2,900 offices in 80 countries.
ManpowerGroup has a long-term earnings growth expectation of 13%. The company currently has an Earnings ESP of +0.59% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company is expected to report fourth-quarter 2016 results before the opening bell on Jan 31.
Visa Inc. (V - Free Report) : Headquartered in San Francisco, CA, Visa operates retail electronic payments network worldwide. This industry leader offers a range of branded card payment product platforms, which customers use to develop and offer credit, charge, deferred debit, debit and prepaid payments as well as access cash. It also facilitates commerce through the transfer of value and information among financial institutions, merchants, consumers, businesses and government entities in over 200 countries.
This Zacks Rank #3 stock has a long-term earnings growth expectation of 16.6% and an Earnings ESP of +1.28%. The company is scheduled to report first-quarter fiscal 2017 results after the closing bell on Feb 2. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Alliance Data Systems Corporation : Headquartered in Plano, TX and founded in 1996, Alliance Data is the largest private label credit card processing firm for mid-market specialty retail stores in the U.S. It provides transaction, marketing and credit services in the United States, Canada and internationally.
The company has a long-term earnings growth expectation of 13.7% and a forward PE of 13.5x. Alliance Data currently carries a Zacks Rank #3 along with an Earnings ESP of +0.68%. The company is slated to report fourth-quarter 2016 results before the opening bell on Jan 26.
Moving Forward
As the U.S. stocks continue their steady ascent, sending major indices to record highs with an improving economy, a sneak peek at some possible outperformers backed by a solid Zacks Rank and a positive Earnings ESP could be a great idea for investors to gain from this earnings season.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?
Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>