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3 Buy-Rated Business Service Stocks to Watch Ahead of Q4 Earnings

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Shuvra Shankar Dey
·5 min read
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Looking back at the fourth quarter of 2020, we see the service sector steadily bouncing back from the pandemic-induced weakness. This rebound is being aided by the gradually-reopening and recovering economy, and manufacturing and non manufacturing activities that have been gathering strength since the lockdown relaxations stared.

Healthy Economic Numbers

The sector is a major beneficiary of the economy, which can gather further strength on a successful mass vaccination program that could start curbing down the impacts of the recent insurgence that has forced local governments to re-impose partial lockdowns and restrict daily economic activities. Meanwhile, a steady recovery is evident from the latest third-quarter GDP number, which according to the "third" estimate released by the Bureau of Economic Analysis, increased at an annual rate of 33.4% against a 31.4% decline in the second quarter.

Notably, economic activity in the manufacturing sector expanded 3.2% from November to December last year, as the PMI measured by Institute for Supply Management (ISM) touched 60.7%. This is the eighth consecutive month of expansion after April’s contraction that had interrupted an impressive growth rally of 131 consecutive months. Non-manufacturing activities clocked 1.3% growth from November to December, as the Services PMI measured by ISM touched 57.2%. This is the seventh consecutive month of expansion after a two-month period of contraction that followed 122 straight months of expansion.

Home-Working, Service Essentiality — Key Drivers in Q4

Markedly, companies that have established successful work-from-home models, focused on digital transformation, and offered essential services or services that customers cannot delay, witnessed demand shooting up or staying constant through the October-December quarter.

For instance, remote working with increased adoption of technology has been helping consulting and outsourcing firms get the job done uninterrupted. On top of that, service demand increased as organizations have increased their search for advice that can help them protect employees, and stay close to customers and shareholders.

Likewise, many maintenance service providers’ businesses were deemed as essential services and so, their brands remained open in every part of the world, where they operate. And clean- up companies have handled increase in municipal waste from residential areas and those from medical centers.

Thus, their stellar performance will likely be reflected in the top- and bottom-line numbers placing the companies solidly to beat estimates.

Here are Our Picks

We have narrowed down our search to business services stocks slated to release quarterly numbers this season. Each of these stocks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy), and has a positive Earnings ESP. You can see the complete list of today’s Zacks #1 Rank stocks here.

Our quantitative model suggests that a company needs the right combination of the following two key ingredients — a positive Earnings ESPand a Zacks Rank #3 (Hold) or better — to increase the odds of a positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

ABM Industries Incorporated ABM: This integrated facility solutions provider is focused on upgrading its human-resources information, labor management and enterprise-resource planning systems. It is utilizing technology to enhance account planning, labor management, payroll and procurement.

ABM's strategy entails growth through acquisitions, while maintaining desirable profit margins. The acquisition of GCA Services Group has expanded the company’s long-term operational and financial position, and is making significant contributions to overall operational results predominantly within the Technology & Manufacturing, Business & Industry and Education segments.

ABM has an Earnings ESP of +5.17% and currently carries a Zacks Rank of 2. The Zacks Consensus Estimate for current-year EPS moved up 3.8% in the past 60 days, suggesting a year-over–year increase of 16.3%.

ABM Industries Incorporated Price, Consensus and EPS Surprise

ABM Industries Incorporated Price, Consensus and EPS Surprise
ABM Industries Incorporated Price, Consensus and EPS Surprise

ABM Industries Incorporated price-consensus-eps-surprise-chart | ABM Industries Incorporated Quote

Aptiv PLC APTV: We believe that with an excellent system integration expertise, this designer, manufacturer and global seller of vehicle components is well positioned to leverage on growing electrification, connectivity and autonomy trends in the automotive sector. The company’s smart architecture provides a competitive advantage and will help it continue gaining market share.

The company recently launched its next-generation Level 1-3 capable advanced driver-assistance systems platform for driverless and electrified vehicles. Powered by its perception systems, software and compute platforms, and connectivity capabilities, the open and scalable platform helps decrease complexity and system costs.

Aptiv has an Earnings ESP of +3.15% and currently carries a Zacks Rank #2. The consensus estimate for the ongoing-year EPS has moved 2.6% north in the past two months to $4.01. Yearly earnings are expected to increase more than 100%.

Aptiv PLC Price, Consensus and EPS Surprise

Aptiv PLC Price, Consensus and EPS Surprise
Aptiv PLC Price, Consensus and EPS Surprise

Aptiv PLC price-consensus-eps-surprise-chart | Aptiv PLC Quote

ManpowerGroup MAN: This global provider of workforce solutions has a digitization, diversification and innovation based business strategy.

ManpowerGroup’s investment in Experis, its professional resourcing and IT expertise is expected to pave way for robust growth after the pandemic dissipates, as companies continue to ramp up technology investments.

The company has an Earnings ESP of +6.20% and currently carries a Zacks Rank of 2. The consensus mark for this year’s earnings has been revised 3% upward in 60 days’ time to $5.55, calling for a year-over-year jump of 66%.

ManpowerGroup Inc. Price, Consensus and EPS Surprise

ManpowerGroup Inc. Price, Consensus and EPS Surprise
ManpowerGroup Inc. Price, Consensus and EPS Surprise

ManpowerGroup Inc. price-consensus-eps-surprise-chart | ManpowerGroup Inc. Quote

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