Service Firms Set to Excel This Earnings Season

The third quarter of 2024 has shown remarkable demand for business services. This surge is attributed to several factors, including a strong push towards digital transformation, the necessity for cost efficiency, a growing inclination towards flexible workforce solutions, and an increasing focus on compliance and regulations.

Business service providers that have effectively utilized technology and adapted to the market's demands for flexibility, regulatory adherence, and sustainability have reaped the greatest benefits. This quarter has highlighted the sector's resilience in supporting various companies through economic challenges while simultaneously seizing long-term growth opportunities within digital, regulatory, and sustainability areas.

According to the latest Earnings Trend report, members of the S&P 500 in the business services sector that have reported results this season experienced a year-over-year earnings growth of 5.2%, alongside a revenue growth of 4.9%. Notably, 81.3% of these companies surpassed EPS estimates, and 72.9% exceeded sales projections.

Currently, the total quarterly earnings for the S&P 500 business services members are expected to grow by 5.4% year over year, with revenues projected to increase by 6.5%.

Several companies within this sector, including Fiserv, Inc. FI, Booz Allen Hamilton Holding Corporation BAH, S&P Global Inc. , and Automatic Data Processing, Inc. ADP, are anticipated to outperform estimates in the ongoing reporting cycle.

Let’s explore the factors that have likely influenced the performance of business services companies in this quarter.

Steady Demand for Business Services

The business services sector has witnessed a sustained increase in demand during this quarter. By the end of the third quarter, the Services PMI, as measured by the Institute for Supply Management, remained above the 50% threshold for the 49th time in the past 52 months.

Key sector-specific factors contributing to this growth include the necessity for essential services such as waste management, an increase in demand for risk mitigation and consulting services, enhanced operational efficiency skills, and the ongoing commitment to digital transformation.

Overall, sectors such as company management support services, healthcare and social assistance, finance and insurance, accommodation and food services, transportation and warehousing, information services, utilities, and educational services have remained robust.

Companies Expected to Exceed Earnings Estimates

Given the extensive number of participants in the business services sector, identifying the right stocks with the potential to outperform earnings estimates can be quite challenging. However, our specialized methodology provides a straightforward approach.

This process involves narrowing down the options to those stocks that combine a positive Earnings ESP with a Zacks Rank of #1 (Strong Buy), #2 (Buy), or #3 (Hold).

Earnings ESP is a technique designed to identify stocks with the highest likelihood of surprising investors during their next earnings announcements. This figure reflects the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

Research indicates that stocks fitting this profile possess a chance of achieving an earnings surprise of up to 70%.

Here are our selected companies poised to beat estimates:

Fiserv: This company is a global provider of payment and financial services technology solutions. Fiserv is set to announce its third-quarter 2024 earnings on October 22. It features an Earnings ESP of +0.18% and holds a Zacks Rank of #2.

The Zacks Consensus Estimate for Fiserv's revenues in the upcoming quarter is $4.91 billion, reflecting a year-over-year increase of 6.3%. The consensus target for earnings stands at $2.25 per share, indicating a growth of 14.8% from last year's performance.

Fiserv, Inc. Price and EPS Surprise

S&P Global: This organization specializes in credit ratings, benchmarks, analytics, and workflow solutions. S&P Global is expected to release its second-quarter fiscal 2024 results on October 24, boasting an Earnings ESP of +3.28% and a Zacks Rank of 2.

The consensus estimate for their upcoming revenue report is $3.4 billion, which signifies a 10.1% year-over-year increase. For earnings, the forecast is $3.54 per share, suggesting a 10.3% rise from the previous year.

S&P Global Inc. Price and EPS Surprise

Booz Allen Hamilton: This firm provides management and technology consulting, analytics, engineering, digital solutions, mission operations, and cybersecurity services to governments, corporations, and nonprofits. Booz Allen is set to report its second-quarter fiscal 2025 results on October 25 with an Earnings ESP of +0.17% and a Zacks Rank of 2.

The revenue estimate for Booz Allen's forthcoming quarter is $2.96 billion, indicating a growth of 10.9% from last year's results. The anticipated earnings per share is $1.48, reflecting a 14.7% increase from the same quarter last year.

Booz Allen Hamilton Holding Corporation Price and EPS Surprise

Automatic Data Processing: This company offers cloud-based human capital management solutions around the globe. ADP is set to announce its first-quarter fiscal 2025 results on October 30, featuring an Earnings ESP of +1.67% and currently holds a Zacks Rank of #3.

The revenue forecast for ADP in the upcoming report is $4.76 billion, representing a 5.5% year-over-year growth. The consensus estimate for earnings stands at $2.20 per share, indicating an increase of 5.8% from the same quarter last year.

Earnings, Stocks, Analysis