The third-quarter earnings season for the Zacks Business Services sector has just started, with a host of companies set to release their numbers this week. Till now, three S&P 500 business services stocks Omnicom Group Inc. OMC, IHS Markit Ltd. INFO and The Interpublic Group of Companies, Inc. IPG have reported their results. While Omnicom and Interpublic beat on both earnings and revenues in third-quarter 2019, IHS Markit delivered only an earnings beat in third-quarter fiscal 2019.
Looking back at the Q2 earnings season, the 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 10.5%, while overall earnings are projected to increase 7% year over year, per the latest Earnings Preview.
So what’s up in the business services sector?
Business Services Sector Remains 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 is expected to have been 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 was 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 38% (6 out of 16 sectors). Additionally, we observe that the sector has performed well so far this year compared with the benchmark. It has gained 24.9%, outperforming the 19% rise of the Zacks S&P 500 composite.
V, ADS, TNET and FCN in Spotlight
Given this encouraging backdrop, let’s delve deeper and analyse the factors likely to have influenced the quarter's performance of four business services companies scheduled to report their respective numbers on Oct 24.
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.
Visa Inc. V: This California-based payments technology company is scheduled to report fourth-quarter fiscal 2019 results after market close.
The Zacks Consensus Estimate for revenues is pegged at $6.08 billion, indicating an 11.8% increase from the year-ago quarter reported figure. The company is likely to have retained its revenue momentum in the fourth quarter on the back of its strong market position and attractive core business that are steadily being driven by new deals, renewed agreements, accretive acquisitions, increasing spending via cards, shift to digital form of payments and expansion of service offerings. Revenues are likely to have benefited from higher payments volumes, cross-border volumes and processed transactions.
The consensus mark for earnings per share stands at $1.43, indicating a rise of 18.2% from the prior-year quarter's reported number. The bottom line is expected to have gained from the company’s share buyback in the fiscal third quarter.
Visa has an attractive earnings surprise history, having surpassed estimates in each of the trailing four quarters, with an average positive surprise of 3.4%.
However, this time around, things are not looking up for Visa as the firm has an Earnings ESP of -0.51% and a Zacks Rank #3. (Read more: Will the Beat Streak Continue for Visa in Q4 Earnings?)
Visa Inc. Price and EPS Surprise
Visa Inc. price-eps-surprise | Visa Inc. Quote
Alliance Data Systems Corporation ADS: This Ohio-based provider of data-driven marketing and loyalty solutions is set to release third-quarter 2019 results before the opening bell.
The Zacks Consensus Estimate for revenues is pegged at $1.45 billion, indicating a decline of 25.5% from the year-ago quarter reported figure. Lower normalized average receivables and lower gross yields are likely to have weighed on the company’s top line.
The consensus mark for earnings per share is pegged at $5.24, suggesting a decline of 16.3% from the year-ago quarter reported figure. Unfavourable impact by the timing of credit card portfolio acquisitions is likely to have weighed on the company’s bottom line.
The company’s earnings surprise history has not been impressive. It missed the Zacks Consensus Estimate in two of the last four quarters, delivering an average negative surprise of 3.7%.
Encouragingly, our model indicates that Alliance Data Systems may beat on earnings in the to-be-reported quarter, as it has the favorable combination of an Earnings ESP of +1.34% and a Zacks Rank #3. (Read more: Is a Beat in Store for Alliance Data in Q3 Earnings?)
Alliance Data Systems Corporation Price and EPS Surprise
Alliance Data Systems Corporation price-eps-surprise | Alliance Data Systems Corporation Quote
TriNet Group, Inc. TNET: This California-based provider of human resources solutions for small and midsize businesses in the United States and Canada is scheduled to report third-quarter 2019 results after market close.
The Zacks Consensus Estimate for revenues is pegged at $224.95 million, indicating a decline of 1.3% from the year-ago quarter reported figure. The consensus estimate lies within the company’s guided range of $213-$228 million.
The consensus mark for earnings per share stands at 80 cents, indicating a rise of 5.3% from the prior-year quarter reported number. Notably, the consensus estimate lies within the guided adjusted EPS range of 71-85 cents.
TriNet has an impressive earnings surprise history, having surpassed estimates in each of the trailing four quarters, with an average positive surprise of 15.5%.
However, our model does not conclusively predict an earnings beat for TriNet this time around as the firm has an Earnings ESP of 0.00% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
TriNet Group, Inc. Price and EPS Surprise
TriNet Group, Inc. price-eps-surprise | TriNet Group, Inc. Quote
FTI Consulting, Inc. FCN: This Columbia based provider of business advisory services to manage change, mitigate risk, and resolve disputes is set to release third-quarter 2019 results before the opening bell.
The Zacks Consensus Estimate for revenues is pegged at $540.13 million, indicating 5.3% increase from the year-ago quarter reported figure. The top line is likely to have benefited from higher demand across all business segments and regions, and higher success fees.
The consensus mark for earnings per share stands at $1.03, indicating a rise of 3% from the prior-year quarter reported number. The bottom line is likely to have benefited from strong operating performance in the company’s Corporate Finance & Restructuring, Economic Consulting and Technology segments.
FTI Consulting has an impressive earnings surprise history, having surpassed estimates in each of the trailing four quarters, with an average positive surprise of 70.8%.
However, our model indicates that the company 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 Zacks Rank #3.
FTI Consulting, Inc. Price and EPS Surprise
FTI Consulting, Inc. price-eps-surprise | FTI Consulting, Inc. Quote
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
IHS Markit Ltd. (INFO) : Free Stock Analysis Report
Interpublic Group of Companies, Inc. (The) (IPG) : Free Stock Analysis Report
Omnicom Group Inc. (OMC) : Free Stock Analysis Report
FTI Consulting, Inc. (FCN) : Free Stock Analysis Report
TriNet Group, Inc. (TNET) : Free Stock Analysis Report
Alliance Data Systems Corporation (ADS) : Free Stock Analysis Report
Visa Inc. (V) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research