The Business Services sector (one of the Zacks 16 sectors) covers an array of services including marketing, consulting, staffing, security, telecommunications, Internet services, logistics and waste handling. Thus, the outlook of the business services sector is firmly tied to the broader economy.
The Trump administration’s business friendly approach, a strong U.S. economy, reduced tax rates, robust manufacturing activity and improvements in the labor market are currently major positives for the sector.
What’s Going in Favor of Business Services Sector?
Tax Cuts, Trump Administration’s Efforts to Boost Sector
The Trump administration remains focused on improving the ease of doing business as evident from the recent tax cuts. The historic overhaul of the tax structure to reduce tax liabilities from 35% to 21% has boosted corporate earnings, increased investments and in some instances also reflected in employee rewards. In addition, Trump’s pledge to spend $1 trillion on infrastructure projects over a period of 10 years and regulatory rollbacks remain tailwinds.
Employment and Manufacturing and Non-Manufacturing Activity
The employment index registered a growth of 57.3% in March which indicates employment growth in March for the 18th consecutive month. Of the 18 manufacturing industries, 12 reported employment growth. The increase came as companies are gearing up to hire more skilled workers and indirect personnel.
Economic activity in the manufacturing sector expanded in March and the overall economy grew for the 107th consecutive month. U.S. manufacturing activity continued its robust performance in March as the PMI measured by ISM touched 59.3%. This indicates strong growth in manufacturing for the 19th consecutive month, led by continued expansion in new orders, production activity, employment and inventories, with suppliers continuing to struggle delivering to demand. Of the 18 manufacturing industries, 17 reported growth in March.
As far as the non-manufacturing sector is concerned, NMI stood at 58.8% in March, recording the 98th consecutive month of expansion. The Prices Index and the Employment Index gained 0.5% and 1.6% to hit 61.5% and 56.6%, respectively. As many as 15 non-manufacturing industries reported growth.
Consecutive upsurge in the PMI, NMI as well as greater number of jobs offered by manufacturing giants buoys further optimism.
The sector has performed well in the past year when compared with the benchmark. The sector has gained 15.7%, significantly outperforming the S&P 500’s rally of 12.5% in the said time frame.
What’s in Store for the Sector This Earnings Season?
We are approaching the first earnings season of the year. Per the latest Earnings Outlook report, total earnings for the sector are expected to be up 10.7% on 4.8% higher revenues.
The primary growth drivers in this highly fragmented industry are a healthy economy with decent prospects of job growth, higher disposable income and new business initiatives. An ideal mix of services, effective marketing strategies and ability to retain and attract new customers make the perfect recipe for profitability for most of these companies.
Given the forecast, it might be a good idea to zero in on a handful of business services stocks that are poised to beat earnings estimates this quarter. An earnings surprise is likely to lead to an outperformance in shares.
Given the large number of companies in this arena, picking the right stocks for your portfolio might appear to be a colossal task. An easy way to narrow down the list is by choosing stocks that have a favorable Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 (Hold) and a positive Earnings ESP with the help of the Zacks Stock Screener. You can see the complete list of today’s Zacks #1 Rank stocks here.
Earnings ESP is our proprietary methodology for determining the stocks that have the best chances to surprise with their next earnings announcement. Earnings ESP shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%. Here are four business services stocks that match the abovementioned criteria and thus may emerge winners in the upcoming quarterly earnings.
Headquartered in Brookfield, WI, Fiserv, Inc. (FISV - Free Report) provides financial services technology solutions to over 16,000 clients worldwide in the banking, insurance, healthcare and investment industries.
Fiserv’s earnings have surpassed the Zacks Consensus Estimate in two of the previous four quarters, delivering an average positive earnings surprise of 0.8%. Currently, it is a Zacks Rank #2 stock with an Earnings ESP of +0.34%.
Moreover, in the last 90 days, the Zacks Consensus Estimate for first-quarter 2018 earnings increased 8.8% to 74 cents per share. Full-year earnings estimates increased 8.7% to $3.11 per share in the same time frame.
The company is slated to report first-quarter 2018 results after the closing bell on May 1.
Headquartered in Purchase, NY, Mastercard Incorporated (MA - Free Report) is a leading global payment solutions company that provides an array of services such as credit, debit, mobile, web-based and contactless payments, and other related electronic payment programs to financial institutions and other entities.
The company has an impressive earnings surprise history. It surpassed the Zacks Consensus Estimate in all the last four quarters, with an average beat of 5.9%. Moreover, its Zacks Rank #2 coupled with an Earnings ESP of +2.67% makes it an attractive pick.
In the last 90 days, the Zacks Consensus Estimate for first-quarter 2018 earnings increased 4.2% to $1.25 per share. Full-year earnings estimates increased 11.2% to $5.94 per share in the same time frame.
The company is slated to report first-quarter 2018 results on May 2.
Headquartered in Irvine, CA, CoreLogic, Inc. (CLGX - Free Report) is a leading global provider of property information, insight, analytics and data-enabled solutions
The company’s earnings have surpassed the Zacks Consensus Estimate in two of the last four quarters, with an average beat of 2.6%. Moreover, it carries a Zacks Rank #2 stock and has an Earnings ESP of +5.38%.
In the last 90 days, the Zacks Consensus Estimate for first-quarter 2018 earnings increased 5.3% to 40 cents per share. Full-year earnings estimates increased 6.1% to $2.60 per share in the same time frame.
The company is slated to report first-quarter 2018 results after the closing bell on Apr 25.
WNS (Holdings) Limited (WNS - Free Report) is a leading provider of global Business Process Management (BPM) services.
The company’s earnings have surpassed the Zacks Consensus Estimate in three of the last four quarters, with an average beat of 11.7%. Moreover, it has a Zacks Rank #2 and an Earnings ESP of +0.89%.
Over the last 90 days, the Zacks Consensus Estimate for first-quarter 2018 earnings increased 5.6% to 57 cents per share. Full-year earnings estimates increased 8.4% to $2.19 per share in the same time frame.
The company is expected to report fourth-quarter fiscal 2018 results on Apr 26.
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