Business - Services space is a major beneficiary of the broader economy and manufacturing and non-manufacturing (service) activities. While service activities are currently in good shape, their positive impacts on the industry are being partially offset by contracting economic activity in the manufacturing sector. Prudent growth strategies, innovation and technology enhancements are helping APi Group Corporation ( APG Quick Quote APG - Free Report) , Mitie Group plc ( MITFY Quick Quote MITFY - Free Report) and Crawford & Company ( CRD.B Quick Quote CRD.B - Free Report) to sail through challenges. About the Industry
The Zacks Business-Services industry comprises companies that offer a range of services, including specialty rental, supply-chain management, electronic commerce, technology, document management, digital audience, data, voice, analytical and business transformation, among others. The pandemic has changed the way industry players conduct business and deliver services. The industry’s key focus is currently on channelizing money and efforts toward more effective operational components, such as technology, digital transformation, data-driven decision-making and enhanced cybersecurity. To position themselves suitably in the post-pandemic era and better utilize the opportunities that the economic recovery will bring, service providers are increasing their efforts toward formulating and reassessing strategic initiatives.
What's Shaping the Future of the Business Services Industry?
The industry is mature, with demand for services in good shape for a while now. Revenues, income and cash flows are anticipated to gradually reach the pre-pandemic levels, aiding most industry players to pay out stable dividends. Demand Stability: Higher talent costs due to a competitive talent market have been a headwind for the industry. However, the removal of the Trump-era ban on legal immigration is helping service providers thrive with the increased flow of foreign talent. Relaxed Immigration Restrictions:
With continued uncertainty in the economy, the industry is expected to see pricing, staffing and labor cost increases with no easy savings opportunities in supply chain operations through 2023. Certain Headwinds to Continue: Zacks Industry Rank Indicates Dull Near-Term Prospects
The Business-Services industry is housed within the broader
Business Services sector. It carries a Zacks Industry Rank #215, which places it in the bottom 12% of more than 240 Zacks industries.
Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates underperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and current valuation.
Industry's Price Performance
The Zacks Business Services industry has outperformed the broader sector but underperformed the S&P 500 in the past 12-month period.
The industry has risen 15.3% compared with the S&P 500 composite’s growth of 18.5%. The broader sector has returned 10.7% over the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing business-services stocks, the industry is currently trading at 24.2X compared with the S&P 500’s 18.58X and the sector’s 22.78X.
Over the past five years, the industry has traded as high as 53.57X and as low as 10.35X, with the median being 22.6X, as the charts below show.
Price to Forward 12-Month P/E Ratio
3 Service Stocks to Bet On
We have presented three stocks that are well poised to grow in the near term.
Crawford & Company: This provider of claims management and outsourcing solutions is currently witnessing growth across all its segments. The top and bottom lines are benefiting from strong client relationships and investments in technology and people.
The company carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for 2023 EPS has increased 4.8% to $1.09 in the past 60 days. CRD.B’s shares have gained 10.6% in the past six months.
APi Group: This provider of safety, specialty and industrial services also carries a Zacks Rank #2. The company continues with its strategic moves toward increasing high-margin inspection, service and monitoring revenues, strategic pricing initiatives, and prudent customer and project selection. Both top and bottom lines are in good shape, driven by strong organic growth and solid operational performance.
The Zacks Consensus Estimate for 2023 bottom line has increased 0.7% to $1.51 in the past 60 days. APG shares have gained 19.3% in the past six months.
Mitie Group: The UK’s leading facilities management company has a market share around double the size of its next largest competitor. The company operates in a highly fragmented market and has a devoted blue-chip customer base across public and private sectors benefiting from diverse service offerings.
MITFY currently carries a Zacks Rank #2. The Zacks Consensus Estimate for 2023 EPS has increased 4.1% to 51 cents in the past 60 days. Mitie’s shares have gained 29.2% in the past six months.