3 Business Services Stocks to Watch in a Prospering Industry
Economic strength, encouraging service activities and increased adoption and success of the work-from-home trend are enabling the Zacks Business - Servicesindustry players to support the demand environment.
Driven by these positives, investors interested in the industry would do well to focus on stocks like APi Group Corporation APG, Mitie Group plc MITFY and Crawford & Company (CRD.B).
About the Industry
The Zacks Business-Services industry comprises companies that offer a range of services, including specialty rental, supply-chain management, electronic commerce, technology, document management, digital audience, data, voice, analytical and business transformation, among others. The pandemic has changed the way industry players conduct business and deliver services. The industry’s key focus is currently on channeling money and efforts toward more effective operational components, such as technology, digital transformation, data-driven decision-making and enhanced cybersecurity. To position themselves suitably in the post-pandemic era and better utilize the opportunities that the economic recovery will bring, service providers are increasing their efforts toward formulating and reassessing strategic initiatives.
What's Shaping the Future of the Business Services Industry?
Economic Recovery: The sector is a major beneficiary of the broader economy and service activities. According to the "second" estimate released by the Bureau of Economic Analysis, GDP grew at an annual rate of 5.2% in the third quarter of 2023 compared with 2.1% in the second quarter. Economic activities in the non-manufacturing sector are encouraging. The Services PMI measured by the Institute for Supply Management has stayed above the 50% mark for the past 11 months, indicating continued expansion. It registered 52.7%, increasing 0.9 percentage points from October’s reading of 51.8%.
Demand Stability: The industry is mature, with demand for services in good shape for a while now. Revenues, income and cash flows are anticipated to gradually reach pre-pandemic levels, aiding most industry players in paying out stable dividends.
Relaxed Immigration Restrictions: Higher talent costs due to a competitive talent market have been a headwind for the industry. However, the removal of the Trump-era ban on legal immigration is helping service providers thrive with the increased flow of foreign talent.
Zacks Industry Rank Indicates Solid Near-Term Prospects
The Business-Services industry is housed within the broader Business Services sector. It carries a Zacks Industry Rank #81, which places it in the top 32% of more than 250 Zacks industries.
The group’s Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates solid near-term growth prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and current valuation.
Industry's Price Performance
The Zacks Business Services industry has outperformed the broader sector and the S&P 500 in the past 12-month period.
The industry has risen 28.7% compared with the S&P 500 composite’s growth of 23.6%. The broader sector has returned 21.2% over the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing business-services stocks, the industry is currently trading at 27.98X compared with the S&P 500’s 19.98X and the sector’s 25.53X.
Over the past five years, the industry has traded as high as 53.98X and as low as 10.21X, with the median being 22.43X, as the charts below show.
Price to Forward 12-Month P/E Ratio
3 Service Stocks in Focus
We have presented three stocks that are well poised to grow in the near term.
APi Group: This provider of safety, specialty, and industrial services carries a Zacks Rank #2 (Buy). The company continues with its strategic efforts toward increasing high-margin inspection, service and monitoring revenues, strategic pricing initiatives and prudent customer and project selection. Both top and bottom lines are in good shape, driven by strong organic growth and solid operational performance.
The Zacks Consensus Estimate for 2023 bottom line has increased 4.7% to $1.57 in the past 60 days. APGshares have gained 31% in the past six months.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Mitie Group: The U.K.’s leading facilities management company has a market share around double the size of its next largest competitor. It operates in a highly fragmented market and has a devoted blue-chip customer base across public and private sectors, benefiting from diverse service offerings.
MITFY currently carries a Zacks Rank #2. The Zacks Consensus Estimate for 2023 EPS has increased 3.9% to 53 cents in the past 60 days. Mitie’sshares have gained 7% in the past six months.
Crawford & Company: This provider of claims management and outsourcing solutions is currently benefiting from business development efforts. The top and bottom lines are gaining from strong client relationships and investments in technology and people.
The company carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for 2023 EPS has remained unchanged at $1.07 in the past 30 days. CRD.B’s shares have soared 28% in the past six months.
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APi Group Corporation (APG) : Free Stock Analysis Report
Crawford & Company (CRD.B) : Free Stock Analysis Report
Mitie Group PLC. (MITFY) : Free Stock Analysis Report
