The third-quarter earnings season seems to have started on an optimistic note for the Zacks Business Services sector. Till now, seven S&P 500 business services stocks — Omnicom Group Inc. OMC, IHS Markit Ltd., The Interpublic Group of Companies, Inc., Equifax Inc. EFX, Waste Management Inc., Rollins, Inc. and Robert Half International Inc. RHI have reported their respective quarterly numbers.
While Omnicom, Interpublic and Equifax beat on both earnings and revenues in third-quarter 2019, Waste Management delivered only an earnings beat. Rollins and Robert Half’s bottom line matched the consensus mark in the quarter. IHS Markit delivered an earnings beat in third-quarter fiscal 2019.
A look back at the Q2 earnings season reflects that business services sector’s earnings recorded an increase of 9.6% year over year, while revenues inched up 4.3%. In the third quarter, revenues are expected to scale up 11.2%, while overall earnings are projected to increase 11.3% year over year, per the latest Earnings Preview.
Business Services Sector in Good Shape
Owing to its widely-diversified nature, the business services sector has been benefiting from economic strength and stability, which is likely to have kept service activities in good shape in the third quarter. The sector was buoyed by a strong labor market, low unemployment and inflation.
Notably, U.S. GDP grew at an annualized rate of 2% in second-quarter 2019 per the “second” as well as the "third" estimate released by the Bureau of Economic Analysis. The Fed expects GDP growth of 2.2% in the third quarter and 2.1% in 2019. September was the 116th month of consecutive growth in non-manufacturing activities with ISM-measured Non-Manufacturing Index touching 52.6%
Since business services firms have lower foreign exposure compared with goods companies, the industry is likely to have been less affected by trade war in the third quarter.
The buoyancy in the sector is further confirmed by its Zacks Sector Rank in the top 32% (5 out of 16 sectors). Additionally, we observe that the sector has performed well so far this year compared with the benchmark. It has gained 23.7%, outperforming the 19.3% rise of the Zacks S&P 500 composite.
ADP, IQV, RSG and APTV in Spotlight
Given this encouraging backdrop, let’s delve deeper and analyze the factors likely to have influenced the performance of four business services companies that are scheduled to report their respective quarterly numbers on Oct 30.
Our proprietary model clearly indicates that a company needs to have the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to increase the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Automatic Data Processing, Inc. ADP: This New Jersey-based provider of cloud-based human capital management solutions is scheduled to report first-quarter fiscal 2020 results before market open.
The Zacks Consensus Estimate for revenues is pegged at $3.51 billion, indicating a 5.6% increase from the year-ago quarter reported figure. Contribution from acquisitions, continued strong retention and new business started from Employer Services New Business Bookings are likely to have partially offset the unfavorable impact from foreign currency movements.
The consensus mark for earnings per share stands at $1.33, indicating a rise of 10.8% from the prior-year quarter reported number. Continued strength in margin performance, lower adjusted effective tax rate and fewer shares outstanding are likely to have boosted ADP’s bottom line.
ADP has an attractive earnings surprise history, having surpassed estimates in each of the trailing four quarters, with an average positive surprise of 7.1%.
However, this time around, things are not looking up for ADP as the firm has an Earnings ESP of -0.59% and a Zacks Rank #3. (Read more: What Awaits Automatic Data Processing in Q1 Earnings?)
Automatic Data Processing, Inc. Price and EPS Surprise
Automatic Data Processing, Inc. price-eps-surprise | Automatic Data Processing, Inc. Quote
IQVIA Holdings Inc. IQV: This North Carolina-based provider of advanced analytics, technology solutions, and contract research services to the life sciences industry in the Americas, Europe, Africa, and the Asia-Pacific is set to release third-quarter 2019 results before the opening bell.
The Zacks Consensus Estimate for revenues is pegged at $2.76 billion, indicating growth of 6.6% from the year-ago quarter reported figure. The top line is likely to have been driven by strength across the company’s Research & Development Solutions (R&DS) and Technology & Analytics Solutions (TAS) segments. Real world and technology businesses, and acquisitions are likely to have contributed significantly to revenue growth.
The consensus mark for earnings per share is pegged at $1.57, suggesting growth of 10.6% from the year-ago quarter reported figure. Operational performance is likely to have aided the bottom line.
IQVIA Holdings has an impressive earnings surprise history, having surpassed estimates in each of the trailing four quarters, with an average positive surprise of 2.1%.
However, our model indicates that IQVIA Holdings may not be able to maintain earnings beat streak in the quarter to be reported, as it has an unfavorable combination of an Earnings ESP of 0.00% and a Zacks Rank #2. (Read more: IQVIA to Report Q3 Earnings: What's in the Offing?)
IQVIA Holdings Inc. Price and EPS Surprise
IQVIA Holdings Inc. price-eps-surprise | IQVIA Holdings Inc. Quote
Republic Services, Inc. RSG: This Arizona-based provider of non-hazardous solid waste collection, transfer, recycling, disposal, and energy services is scheduled to report third-quarter 2019 results after market close.
The Zacks Consensus Estimate for revenues is pegged at $2.69 billion, indicating growth of 5% from the year-ago quarter reported figure. Strong pricing across the company’s collection, disposal and recycling processing businesses and positive impact of internal growth and acquisitions are likely to have driven its revenues in the third quarter.
The consensus mark for earnings per share stands at 85 cents, indicating growth of 3.7% year over year. Benefit from lower-than-expected effective tax rate is likely to have partially offset the headwinds arising from non-cash tax-related charge
Republic Services has an impressive earnings surprise history, having surpassed estimates in each of the trailing four quarters, with an average positive surprise of 1.6%.
However, our model does not conclusively predict an earnings beat for Republic Services this time around as the firm has an Earnings ESP of 0.00% and a Zacks Rank #3. (Read more: What's in Store for Republic Services in Q3 Earnings?)
You can see the complete list of today’s Zacks #1 Rank stocks here.
Republic Services, Inc. Price and EPS Surprise
Republic Services, Inc. price-eps-surprise | Republic Services, Inc. Quote
Aptiv PLC APTV: This Ireland-based provider of electrical, electronic, and safety technology solutions to the automotive and commercial vehicle markets worldwideis set to release third-quarter 2019 results before the opening bell.
The Zacks Consensus Estimate for revenues is pegged at $3.61 billion, indicating 3.5% increase from the year-ago quarter reported figure. The top line is expected to have benefited from content per vehicle growth, market share gains and the company’s balanced customer, regional and end-market exposure.
The consensus mark for earnings per share stands at $1.27, indicating an increase of 2.4% from the prior-year quarter reported number. Strong material and manufacturing performance, overhead cost reduction and volume growth are likely to have aided the bottom-line number.
Aptiv has an impressive earnings surprise history, having surpassed estimates in each of the trailing four quarters, with an average positive surprise of 9.2%.
However, our model indicates that Aptiv may not be able to maintain earnings beat streak in the quarter to be reported, as it has an unfavorable combination of an Earnings ESP of -0.65% and Zacks Rank #3. (Read more: Aptiv to Report Q3 Earnings: What's in the Cards?)
Aptiv PLC Price and EPS Surprise
Aptiv PLC price-eps-surprise | Aptiv PLC Quote
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Equifax, Inc. (EFX) : Free Stock Analysis Report
Omnicom Group Inc. (OMC) : Free Stock Analysis Report
Robert Half International Inc. (RHI) : Free Stock Analysis Report
Automatic Data Processing, Inc. (ADP) : Free Stock Analysis Report
Republic Services, Inc. (RSG) : Free Stock Analysis Report
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