The third quarter of 2024 saw strong demand for business services, driven by digital transformation, cost efficiency needs, increased adoption of flexible workforce solutions, and increased focus on compliance and regulatory adherence.

Business services providers that leveraged technology and adapted to market needs for flexibility, regulatory adherence, and sustainability benefited the most. The quarter highlighted the sector's adaptability in supporting companies through economic uncertainties while capitalizing on long-term growth opportunities in digital, regulatory, and sustainability domains.

Per the latest Earnings Trend report, earnings of S&P 500 members of the business services sector that have reported results this season grew 5.2% year over year on 4.9% revenue growth, with 81.3% of the companies beating EPS estimates and 72.9% topping sales projections.

The sector's S&P 500 members' total quarterly earnings are currently anticipated to grow 5.4% year over year, and revenues are likely to rise 6.5%.

A handful of companies from the sector, like Fiserv, Inc. (FI Quick QuoteFI - Free Report) , Booz Allen Hamilton Holding Corporation (BAH Quick QuoteBAH - Free Report) , S&P Global Inc. (SPGI Quick QuoteSPGI - Free Report) and Automatic Data Processing, Inc. (ADP Quick QuoteADP - Free Report) , are expected to beat estimates in the ongoing reporting cycle.

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

Steady Growth in Services Sector Amid Strong Demand

With service activities in the pink, business service demand rose steadily in the quarter. By the end of the third quarter, the Services PMI, measured by the Institute for Supply Management, had stayed above the 50% mark for the 49th time in 52 months.

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

Services about the management of companies & support services, health care & social assistance, finance & insurance, accommodation & food, transportation & Warehousing, Information, utilities, and educational services stayed healthy.

Stocks Poised to Beat This Season

With the existence of several 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 positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP is our proprietary methodology for determining stocks that have the best chances to surprise in 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.

Fiserv: The company is a global provider of payments and financial services technology solutions.FI is scheduled to report its third-quarter 2024 results on Oct. 22. It has an Earnings ESP of +0.18% and currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for the company’s revenues in the to-be-reported quarter is pegged at $4.91 billion, indicating an increase of 6.3% from the year-ago quarter. The consensus mark for earnings is pegged at $2.25 per share, suggesting a rise of 14.8% from the year-ago quarter.

S&P Global: The company is a provider of credit ratings, benchmarks, analytics, and workflow solutions. SPGI is scheduled to report its second-quarter fiscal 2024 results on Oct. 24. It has an Earnings ESP of +3.28% and a Zacks Rank of 2.

The Zacks Consensus Estimate for the company’s revenues in the to-be-reported quarter is pegged at $3.4 billion, implying year-over-year growth of 10.1%. For earnings, the consensus mark is pegged at $3.54 per share, suggesting a 10.3% rise from the year-ago quarter’s actual.

Booz Allen: The company is a provider of management and technology consulting, analytics, engineering, digital solutions, mission operations, and cyber services to governments, corporations, and not-for-profit organizations in the United States and internationally.

BAH is scheduled to post its second-quarter fiscal 2025 results on Oct. 25. It has an Earnings ESP of +0.17% and currently carries a Zacks Rank of 2.

The Zacks Consensus Estimate for the company’s revenues in the to-be-reported quarter is pegged at $2.96 billion, indicating an increase of 10.9% from the year-ago quarter. The consensus mark for earnings is pegged at $1.48 per share, suggesting a rise of 14.7% from the year-ago quarter.

Automatic Data Processing: The company offers cloud-based human capital management solutions globally. ADP is scheduled to post its first-quarter fiscal 2025 results on Oct. 30. It has an Earnings ESP of +1.67% and currently sports a Zacks Rank of 3.

The Zacks Consensus Estimate for the company’s revenues in the to-be-reported quarter is pegged at $4.76 billion, indicating a rise of 5.5% from the year-ago quarter. The consensus mark for earnings is pegged at $2.2 per share, suggesting a rise of 5.8% from the year-ago quarter.