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3 Service Firms Poised to Trump Estimates in Q1 Earnings

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The Zacks Business Services sector is expected to have performed well in the January-March quarter of 2022, backed by a solid demand environment that was driven by growth in manufacturing and service activities. However, continued supply-chain disruptions, cost inflation and labor issues are likely to have remained headwinds.

Per the latest Earnings Trend report, the sector’s first-quarter earnings are anticipated to witness year-over-year growth of 20.5%, higher than the 19.9% rise recorded in the previous quarter. The sector’s revenues are projected to increase 12.6%, lower than the previous quarter’s 13.4% rise. However, margins are expected to decline by 0.5% against 1.6% growth in the prior quarter.

Let us discuss the factors that might have played a key role in shaping the performance of Business Services stocks in the quarter.

Key Factors to Consider for Service Stocks

Economic activities in manufacturing, as well as non-manufacturing sectors, have stayed in the pink during the quarter. Both the manufacturing PMI and the Services PMI, measured by the Institute for Supply Management, have stayed above the 50% mark for the past 23 consecutive months, indicating continued expansion.

Sector-specific factors that acted as tailwinds in the quarter are the essentiality of certain services like waste management, rise in demand for risk mitigation and consulting services, increased expertise in improving operational efficiency and reducing costs, successful work-from-home models, and digital transformation.

Services pertaining to transportation & warehousing; management of companies; retail trade; wholesale trade; accommodation & food; mining; entertainment & recreation; utilities; construction; healthcare & social assistance; finance & insurance; education; professional; and scientific & technical have stayed healthy in the quarter.

Stocks Poised to Beat This Season

With the existence of a number of players in the sector, finding the right business services stocks that have the potential to beat on earnings can be daunting. Our proprietary methodology, however, makes it fairly simple.

You could narrow down the list of choices by looking at stocks that have the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), and a positive Earnings ESP. 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 stocks here.

Earnings ESP is our proprietary methodology for determining stocks that have the best chances to surprise with their next earnings announcement. It is the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

Our research shows that for stocks with this combination, the chance of an earnings surprise is as high as 70%.

Here are our picks:

Marqeta, Inc. (MQ - Free Report) : This company runs a cloud-based open application programming interface platform that delivers card issuing and transaction processing services to developers, technical product managers and entrepreneurs.

Marqeta will report first-quarter 2022 results on May 11.It has an earnings ESP of +2.70% and currently carries a Zacks Rank #3. The Zacks Consensus Estimate for earnings in the to-be-reported quarter has been stable at a loss of 9 cents in the past 30 days.

Marqeta’s performance in the to-be-reported quarter is expected to have benefited from the addition of new customers as well as growth from existing customers. The company has a customer base that is growing fast and expanding in new geographies. Marqeta’s ability to deliver modern infrastructure, enabling companies to deliver innovative, high-volume card programs at scale, is a key tailwind. New e-commerce experiences like on-demand delivery and buy now, pay later, which evolved amid the pandemic, are expected to be significant contributors to the company’s performance in the quarter.

Marqeta, Inc. Price and EPS Surprise

Marqeta, Inc. Price and EPS Surprise

Marqeta, Inc. price-eps-surprise | Marqeta, Inc. Quote

Affirm Holdings, Inc. (AFRM - Free Report) : This operator of a platform for digital and mobile-first commerce will report third-quarter fiscal 2022 results on May 12.

Affirm has an earnings ESP of +23.39% and currently carries a Zacks Rank #3. The Zacks Consensus Estimate for earnings in the to-be-reported quarter has been stable at a loss of 50 cents in the past 30 days.

The company’s performance in the to-be-reported quarter is likely to have benefited from increase in gross merchandise volume, active merchants and active customers. Technological investment is a key tailwind for Affirm in long term.

Affirm Holdings, Inc. Price and EPS Surprise

Affirm Holdings, Inc. Price and EPS Surprise

Affirm Holdings, Inc. price-eps-surprise | Affirm Holdings, Inc. Quote

Riot Blockchain, Inc. (RIOT - Free Report) : This bitcoin mining company is expected to register strong performance in the to-be-reported first quarter of 2022, driven by growth in mining revenues.

Riot Blockchain has an earnings ESP of +25% and currently carries a Zacks Rank #3.

Riot Blockchain, Inc. Price and EPS Surprise

Riot Blockchain, Inc. Price and EPS Surprise

Riot Blockchain, Inc. price-eps-surprise | Riot Blockchain, Inc. Quote

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.


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Riot Blockchain, Inc. (RIOT) - free report >>

Affirm Holdings, Inc. (AFRM) - free report >>

Marqeta, Inc. (MQ) - free report >>