The widely-diversified Zacks
Business Services sector, which houses consulting, outsourcing, staffing and waste management companies, to name a few, is a major beneficiary of economic health.
The sector benefited from broader factors, such as economic growth, increased vaccination drive and the strengthening of manufacturing and non-manufacturing activities, along with sector-specific factors like service essentiality, successful work-from-home models and digital transformation, in the fourth quarter of 2021.
Q4 Tailwinds for Business Services
A steady economic recovery is evident from the fourth-quarter 2021 GDP number, which, according to the "advance" estimate released by the Bureau of Economic Analysis, grew at an annual rate of 6.9% compared with the increase of 2.3% in the third quarter.
With manufacturing and service activities in the pink, the demand for business services rose steadily in the fourth quarter. Although the economic activity in the manufacturing sector shrunk 1.2% from December to January, with the Manufacturing PMI measured by the Institute for Supply Management (“ISM”) touching 57.6%, the reading of above 50% marked the 20th consecutive month of expansion.
The quarter witnessed strength in major manufacturing industries like computer & electronic products; machinery; electrical equipment; appliances & components; transportation equipment; food, beverage & tobacco products; plastics & rubber products; and petroleum & coal products.
Non-manufacturing activities declined 2.4% in January from December’s 62.3%, as the Services PMI measured by the ISM touched 59.9%. With a reading above 50%, this is the 20th consecutive month of expansion of service activities.
Among services industries, transportation & warehousing; management of companies & support services; retail trade; wholesale trade; accommodation & food services; mining; utilities; construction; health care & social assistance; finance & insurance; information; educational services; and professional, scientific & technical services stayed healthy.
Expectations and Earnings Picture So Far
The fourth-quarter earnings for the S&P 500 members of the business services sector have been outstanding so far. The sector had a commendable start, with major players like
Robert Half International ( RHI Quick Quote RHI - Free Report) , Aptiv ( APTV Quick Quote APTV - Free Report) and Waste Management ( WM Quick Quote WM - Free Report) beating on both earnings and revenues.
Earnings Outlook suggests that earnings for those S&P 500 members of the business services sector which have reported results, grew 27.8% year over year on 21.5% revenue growth, with 92.3% of the companies beating EPS estimates and 100% topping sales projections.
Total quarterly earnings for the S&P 500 members of the sector are currently anticipated to display 18.2% year-on-year growth, and revenues will likely reflect a 12.3% rise. This compares favorably with 1.1% growth and 1.8% decline in earnings and revenues in the fourth quarter of 2020, respectively.
SPGI, IT, FISV in Spotlight
Here we discuss three business services companies, scheduled to report their quarterly results on Feb 8.
Our quantitative model suggests that the combination of the following two key ingredients — a positive
Earnings ESP and a Zacks Rank #3 (Hold) or better — increases the odds of a positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
You can see
. the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here S&P Global Inc. (: This New York-based provider of ratings, benchmarks, analytics and data is scheduled to report SPGI Quick Quote SPGI - Free Report) fourth-quarter 2021 results before the bell.
The Zacks Consensus Estimate for S&P Global’s revenues is pinned at $2.05 billion, indicating growth of 9.6% from the year-ago reported figure. Strength across Ratings, Platts and Indices segments is likely to have aided the top line.
The consensus mark for earnings is pegged at $3.13 per share, calling for an increase of 15.5% from the year-earlier quarter’s reported figure. Revenue growth and operating performance are expected to have aided the bottom line.
S&P Global has an Earnings ESP of 1.33% and carries a Zacks Rank #3. (Read more:
Is a Beat in the Cards for S&P Globalin Q4 Earnings?) Gartner, Inc. ( IT Quick Quote IT - Free Report) : This Connecticut-based research and advisory company is scheduled to report fourth-quarter 2021 results before market open.
The Zacks Consensus Estimate for Gartner’s revenues in the quarter is pegged at $1.26 billion, indicating growth of 12.9% from the year-ago quarter's reported figure. Strength across Research, Consulting and Conferences segments is likely to have aided the top line.
Solid operational performance is likely to have aided the bottom line. The consensus estimate for earnings stands at $2.46 per share, implying year-over-year growth of 54.7%.
Gartner has an Earnings ESP of 6.67% and a Zacks Rank #2. (Read more:
Gartner to Report Q4 Earnings: What's in the Cards?) Fiserv, Inc. ( FISV Quick Quote FISV - Free Report) : This Wisconsin-based integrated financial services technology provider is scheduled to report fourth-quarter 2021 results, before the bell.
The Zacks Consensus Estimate for revenues stands at $4.02 billion, indicating growth of 11.1% from the year-ago reported figure. Strength across all the segments — Merchant Acceptance, FinTech and Payments and Network — is likely to have boosted the company’s top-line growth.
The Zacks Consensus Estimate for earnings in the to-be-reported quarter is pegged at $1.55 per share, indicating growth of 19.2% from the year-ago quarter’s reported figure.
Fiserv has an Earnings ESP of -1.35% and a Zacks Rank #3. (Read more:
Fiserv Set to Report Q4 Earnings: What's in the Cards?
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