Back to top

Image: Bigstock

3 Service Firms Poised to Beat Estimates This Earnings Season

Read MoreHide Full Article

The Zacks Business Services sector is expected to have performed well in the April-June quarter of 2022, backed by a solid demand environment, driven by strength in manufacturing and service activities. However, continued supply-chain disruptions, inflationary pressure and labor market constraints are likely to have remained as headwinds.

Per the latest Earnings Trend report, the sector’s second-quarter earnings are anticipated to witness year-over-year growth of 13.4%, lower than the 21.9% rise recorded in the previous quarter. The sector’s revenues are projected to increase 11.3%, lower than the previous quarter’s 13% rise. Margins are expected to grow 0.4% compared with 1.5% growth in the prior quarter.

Let us discuss the factors that might have played a key role in shaping the performance of business services companies in the quarter.

Key Factors to Consider for Service Stocks

Economic activities in both manufacturing as well as non-manufacturing sectors were in the pink in 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 26 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 lower costs, successful work-from-home models and digital transformation.

Services pertaining to transportation & warehousing; management of companies & support services; wholesale trade; mining; utilities; construction; rental & leasing; health care & social assistance; education; information, professional, scientific & technical 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.

Broadridge Financial Solutions, Inc. (BR - Free Report) : The company provides investor communications and technology-driven solutions to the financial services industry globally.

Broadridge will report fourth-quarter 2022 results on Aug 12.It has an Earnings ESP of +0.75% and currently carries a Zacks Rank #3. The Zacks Consensus Estimate for the to-be-reported quarter has moved 1.9% north in the past 60 days.

Broadridge’s top-line performance in the to-be-reported quarter is expected to have benefited from internal growth, new businesses, increased mutual fund proxy activity, higher volume of customer communications, and the impact of acquisitions. The bottom line in the to-be-reported quarter is expected to have benefited from operating strength driven by growth in recurring fee revenues.

Kelly Services, Inc. (KELYA - Free Report) : This workforce solutions provider will report second-quarter 2022 results on Aug 12. It has an Earnings ESP of +6.99% and currently carries a Zacks Rank #3. The Zacks Consensus Estimate for the to-be-reported quarter has moved 4.3% north in the past 60 days.

The company’s revenues in the to-be-reported quarter are expected to have benefited from the continued increase in customer demand and the positive impacts of the 2021 acquisition of Softworld. Earnings are expected to have benefited from revenue growth, structural improvement in gross profit rate and expense leverage.

Kelly Services, Inc. Price and EPS Surprise

Kelly Services, Inc. Price and EPS Surprise

Kelly Services, Inc. price-eps-surprise | Kelly Services, Inc. Quote

Vivid Seats Inc. (SEAT - Free Report) : The company operates an online secondary marketplace for tickets in the United States and Canada. It will report its second-quarter 2022 results on Aug 9. It has an Earnings ESP of +45.46% and a Zacks Rank #3. The Zacks Consensus Estimate for the to-be-reported quarter has moved 100% north in the past 60 days.

Event cancellation has been a major headwind for the company throughout the pandemic. While cancellations continue to gradually reduce to the pre-pandemic level, the headwind is likely to have weighed on the top line in the quarter. The company is expected to have improved its margin performance in the quarter due to reduced cancellations.

Vivid Seats Inc. Price and EPS Surprise

Vivid Seats Inc. Price and EPS Surprise

Vivid Seats Inc. price-eps-surprise | Vivid Seats Inc. Quote

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


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Broadridge Financial Solutions, Inc. (BR) - free report >>

Kelly Services, Inc. (KELYA) - free report >>

Vivid Seats Inc. (SEAT) - free report >>

Published in