Four Service Firms Expected to Exceed Earnings Estimates

The third quarter of 2024 demonstrated a robust demand for business services. This surge was primarily driven by the need for digital transformation, the pursuit of cost efficiency, an increased adoption of flexible workforce solutions, and a heightened focus on compliance and regulatory requirements.

Service providers that effectively utilized technology and adapted to the market's need for flexibility and sustainability found significant benefits during this period. The quarter showcased the sector's ability to support companies amid economic fluctuations while seizing long-term growth opportunities in digital, regulatory, and sustainability sectors.

According to the latest Earnings Trend report, earnings for S&P 500 companies within the business services sector that have already reported results this season showed a year-over-year growth of 5.2%, accompanied by a revenue increase of 4.9%. Notably, 81.3% of these companies exceeded EPS estimates and 72.9% surpassed sales forecasts.

Looking ahead, the total earnings for S&P 500 members in the sector are expected to rise by 5.4% year over year, with revenues anticipated to increase by 6.5%.

Among the companies in this sector, Fiserv, Inc. (FI), Booz Allen Hamilton Holding Corporation (BAH), S&P Global Inc., and Automatic Data Processing, Inc. (ADP) are poised to beat earnings estimates in the ongoing reporting cycle.

Business Services Sector Growth

The demand for business services remained strong throughout the quarter. By the end of Q3, the Services PMI (Purchasing Managers' Index), as measured by the Institute for Supply Management, remained above the critical 50% threshold for the 49th time in 52 months.

Several sector-specific factors acted as beneficial tailwinds during the quarter. The essential nature of certain services, such as waste management, a growing demand for risk mitigation and consulting services, expertise in enhancing operational efficiency, and digital transformation have significantly contributed to the sector's growth.

Service areas including company management and support services, healthcare and social assistance, finance and insurance, accommodation and food services, transportation and warehousing, information technology, utilities, and educational services have all remained robust.

Service Firms Expected to Exceed Estimates

With numerous players in the sector, identifying potential business services stocks that might exceed earnings expectations can be challenging. However, using our proprietary methodology simplifies this process.

By focusing on stocks that exhibit a positive Earnings ESP (Earnings Surprise Prediction) alongside a Zacks Rank of #1 (Strong Buy), #2 (Buy), or #3 (Hold), you can create a targeted list of potential outperformers. The Earnings ESP indicates the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate, suggesting that stocks with this combination can achieve earnings surprises up to 70% of the time.

Here are the standout companies to watch:

Fiserv: This global provider of payment and financial services technology solutions is scheduled to report its Q3 2024 results on October 22. It holds an Earnings ESP of +0.18% with a Zacks Rank of 2. The revenue estimate for this quarter stands at $4.91 billion, reflecting a 6.3% increase from the previous year. Earnings per share (EPS) are expected to reach $2.25, marking a 14.8% year-over-year rise.

Fiserv, Inc. Overview

S&P Global: Known for providing credit ratings, benchmarks, analytics, and workflow solutions, S&P Global is set to release its Q2 fiscal 2024 results on October 24. With an Earnings ESP of +3.28% and a Zacks Rank of 2, the company anticipates revenues of $3.4 billion—a 10.1% growth over the prior year. EPS estimates are pegged at $3.54, representing a year-over-year increase of 10.3%.

S&P Global Inc. Overview

Booz Allen Hamilton: This firm specializes in management and technology consulting, analytical services, engineering, digital solutions, mission operations, and cyber services for governments, corporations, and nonprofits both in the U.S. and internationally. Booz Allen is scheduled to report its Q2 fiscal 2025 results on October 25, with an Earnings ESP of +0.17% and a Zacks Rank of 2. Revenue forecasts for the quarter sit at $2.96 billion, indicating a 10.9% increase compared to last year, while EPS is expected to reach $1.48, up 14.7% from the previous quarter.

Booz Allen Hamilton Holding Corporation Overview

Automatic Data Processing: ADP provides cloud-based human capital management solutions globally. Their first-quarter fiscal 2025 results are set to be reported on October 30, carrying an Earnings ESP of +1.67% and a Zacks Rank of 3. Revenue projections hover around $4.76 billion, reflecting a 5.5% increase from the previous year, while the EPS estimate stands at $2.20, up 5.8% year over year.

Earnings, Services, Growth, Companies