The business services sector’s performance is a function of the health of the broader economy, which is currently on a solid footing buoyed by a strong labor market, unemployment at a 49-year low, rising wages and modest inflation.
Notably, U.S. GDP grew 3.5% in the third quarter of 2018, per the advance estimate released by the Bureau of Economic Analysis on Oct 26. A better picture will be available when the second estimate is released in Nov 28. U.S. GDP grew 4.1% in the second quarter, almost doubling from 2.2% increase witnessed in the first quarter and recording the strongest performance in four years.
Post the tax reform, U.S. companies are pouring tax savings into growth initiatives. This is aiding both manufacturing and non-manufacturing activities, thereby spurring demand for business services.
The Zacks Business Services sector has performed impressively so far this earnings season with key players like Omnicom Group Inc. (OMC - Free Report) , The Interpublic Group of Companies, Inc. (IPG - Free Report) , IQVIA Holdings Inc. (IQV - Free Report) and Robert Half International Inc. (RHI - Free Report) reporting better-than-expected third-quarter results.
The sector currently carries a Zacks Sector Rank in the top 38% (6 out of 16 sectors) and has gained 11.8% over the past year, outperforming the 7.5% rise of the Zacks S&P 500 composite.
Key Releases on Nov 13
Given this backdrop, investors interested in business services stocks can watch out for two companies that are scheduled to report third-quarter 2018 results on Nov 13.
According to the Zacks model, a company needs the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
We do not recommend Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Colocation space and related services provider Switch, Inc. (SWCH - Free Report) will release its financial numbers after the bell.
The Zacks Consensus Estimate for revenues is pegged at $103 million, indicating year-over-year growth of 5%. The upside is likely to be driven by growth in both colocation and connectivity revenues.
For earnings, the consensus mark is pegged at 3 cents, indicating a year-over-year decline of 62.5%. Equity-based compensation and interest expenses are expected to weigh on the company’s bottom-line performance in the to-be-reported quarter.
Switch has a dismal earnings surprise history, having missed estimates in three of the trailing four quarters, with an average negative surprise of 45.7%.
The company’s Zacks Rank #3 and an Earnings ESP of 0.00% makes earnings surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Switch, Inc. Price and EPS Surprise
Designer, builder, and operator of data centers GDS Holdings Limited (GDS - Free Report) will release its quarterly numbers before the bell.
The Zacks Consensus Estimate for revenues is pegged at $103 million, indicating year-over-year growth of 61%. Increase in area utilized is expected to drive the year-over-year improvement.
The consensus estimate for the bottom line stands at a loss of 11 cents per share, which indicates year-over-year improvement of 21.4%. The company’s profit margins are expected to expand as it continues to realize operating leverage on the corporate cost base.
GDS Holdings delivered average four-quarter negative earnings surprise of 19.9%. Additionally, its Zacks Rank #3 and an Earnings ESP of 0.00% makes earnings surprise prediction difficult.
GDS HOLDINGS Price and EPS Surprise
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