Four Service Firms Expected to Exceed Earnings Estimates

The third quarter of 2024 has shown strong demand for business services, driven largely by the ongoing digital transformation, a growing need for cost efficiency, increased flexibility in workforce solutions, and a heightened focus on compliance and regulatory requirements.

Firms in the business services sector that have effectively utilized technology and adapted to the market's needs for flexibility and sustainability have seen the greatest benefits. This quarter spotlighted the sector's capacity to support companies as they navigate economic uncertainties while also taking advantage of long-term growth opportunities, particularly in the digital and regulatory fields.

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

Looking ahead, total quarterly earnings for the S&P 500 members in this sector are projected to grow by 5.4% compared to the previous year, while revenues are expected to rise by 6.5%. Among the companies in the sector, Fiserv, Inc. (FI), Booz Allen Hamilton Holding Corporation (BAH), S&P Global Inc. , and Automatic Data Processing, Inc. (ADP) are anticipated to surpass estimates in the current earnings season.

Let’s delve into the factors likely influencing the performance of business services companies during this past quarter.

Strong Demand Boosting Growth in Business Services

The demand for business services has steadily increased this quarter, indicating a healthy services sector. By the end of the third quarter, the Services Purchasing Managers' Index (PMI) from the Institute for Supply Management indicated positive growth, remaining above 50% for 49 out of the last 52 months.

Several sector-specific factors contributed to this positive momentum, including the essential nature of certain services such as waste management, a surge in demand for risk management and consulting services, a growing emphasis on operational efficiency, and the push for digital transformation.

Areas such as company management & support services, healthcare & social assistance, finance & insurance, accommodation & food services, transportation, warehousing, information technology, utilities, and educational services have all demonstrated robust performance.

Highlights of Companies Likely to Surpass Earnings Estimates

In a landscape filled with numerous players in the sector, identifying potential company stocks capable of exceeding earnings expectations can be challenging. However, a simplified approach can help narrow the options. Companies with a combination of a positive Earnings ESP (Earnings Surprise Prediction) and a Zacks Rank of #1 (Strong Buy), #2 (Buy), or #3 (Hold) tend to perform best.

The Earnings ESP is a proprietary measure that helps assess stocks’ chances of surprising with their next earnings announcement. It reflects the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. Research indicates that stocks fitting this criterion have a surprising potential of around 70%.

Here are some select companies positioned to exceed earnings expectations:

Fiserv: A worldwide provider of payment and financial services technology solutions, Fiserv is set to announce its third-quarter 2024 results on October 22. The company reports an Earnings ESP of +0.18% and holds a Zacks Rank of #2.

The consensus estimate for Fiserv’s revenues this quarter stands at $4.91 billion, marking a year-over-year increase of 6.3%. Furthermore, the consensus for earnings is $2.25 per share, reflecting a growth of 14.8% compared to the same quarter last year.

Insights on Fiserv, Inc. Price and EPS Performance

S&P Global: This company specializes in credit ratings, benchmarks, analytics, and workflow solutions. S&P Global plans to announce its second-quarter fiscal results for 2024 on October 24 and reports an Earnings ESP of +3.28%, with a Zacks Rank of #2.

The consensus for S&P Global's revenues in the upcoming quarter is $3.4 billion, which would represent a year-over-year growth of 10.1%. The earnings consensus amounts to $3.54 per share, suggesting an increase of 10.3% from the last year’s results.

Insights on S&P Global Inc. Price Performance

Booz Allen Hamilton: As a provider of management and technology consulting services, including analytics and cyber services, Booz Allen Hamilton will report its results for the second quarter of fiscal year 2025 on October 25. The company is expected to have an Earnings ESP of +0.17% and carries a Zacks Rank of #2.

The consensus estimate for Booz Allen’s revenues for this quarter is approximately $2.96 billion, showing a 10.9% increase from the previous year. The earnings consensus is set at $1.48 per share, indicating a growth of 14.7% since last year.

Insights on Booz Allen Hamilton Holding Corporation Price and EPS Performance

Automatic Data Processing: Well known for its cloud-based human capital management solutions, ADP is set to announce its first-quarter fiscal results for 2025 on October 30. The firm reports an Earnings ESP of +1.67% and maintains a Zacks Rank of #3.

The consensus estimate for ADP’s earnings this quarter stands at $4.76 billion, which translates to a year-over-year growth of 5.5%. The earnings consensus is positioned at $2.20 per share, reflecting a rise of 5.8% from the comparative quarter of last year.

These firms illustrate the potential for solid earnings performance in the current reporting cycle. By capitalizing on trends in technology and adapting to market demands, they stand poised to thrive.

Earnings, Growth, Performance, Companies