In the third quarter of 2020, amid coronavirus-induced market uncertainty across the globe, the business services space benefited from increasing adoption and success of the work-from-home model, rising demand for risk mitigation and consulting services, and expertise to improve operational efficiency and reduce costs
Figures That Validate This Growth
With the U.S. economy recovering gradually, both manufacturing and non-manufacturing activities have been gathering steam, thereby boosting demand environment for services like consulting, outsourcing, business-information, advertising and marketing. Per the forecast by the Federal Open Market Committee meeting on Sep 16, U.S. GDP is expected to contract 3.7% in 2020 and rebound up to a record 4% in 2021. Growth could be 3% in 2022 and 2.5% in 2023.
Notably, economic activity in the manufacturing sector expanded 1.8% from July to August as the PMI measured by Institute for Supply Management (ISM) touched 56%. This is the fourth consecutive month of expansion after April’s contraction that had interrupted an impressive growth rally of 131 consecutive months.
Although non-manufacturing activities declined 1.2% from July to August, with the Services PMI measured by ISM touching 56.9%, the reading stayed well above 50, reflecting growth in the services sector. This is the third consecutive month of expansion after a two-month period of contraction that followed 122 straight months of expansion.
Notable job gains witnessed in retail trade, in professional and business services, in leisure and hospitality, and in education and health services have boosted the staffing industry in the third quarter.
Unemployment rate declined by 1.8 percentage points in August and the number of unemployed persons fell by 2.8 million to 13.6 million. Both the metrics reflected a downside for the fourth straight month.
4 Business Services Stocks to Bet On
We have picked four Business Services stocks that are geared up to deliver solid third-quarter results amid the challenging scenario. The buoyancy in the sector is further confirmed by its Zacks Sector Rank #5, which places it in the top 32% of the 16 Zacks sectors. Additionally, the sector has gained 18.8% in the past six months.
We have zeroed in on four promising business services stocks with a favorable Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. The selected companies appear to be compelling investment propositions at the moment.
Additionally, these stocks have solid expected earnings growth rate for the current quarter and witnessed upward estimate revisions in the past 60 days. These stocks also have a solid four-quarter average earnings surprise history.
Let’s have a look at the four picks:
Sykes Enterprises, Incorporated SYKE: This Florida-based provider of multichannel demand generation and customer engagement solutions and services sports a Zacks Rank #1 and has a VGM Score of B.
The company’s expected earnings growth rate for the current quarter is 1.8%. The Zacks Consensus Estimate for the current quarter has moved up 58% in the past 60 days. The company has a trailing four-quarter earnings surprise of 58.2%, on average.The stock has rallied 25.2% in the past six months.
Sykes Enterprises, Incorporated Price and EPS Surprise
Sykes Enterprises, Incorporated price-eps-surprise | Sykes Enterprises, Incorporated Quote
Kforce Inc. KFRC: This Florida-based provider of professional staffing services and solutions carries a Zacks Rank #2 and has a VGM Score of A.
The company’s expected earnings growth rate for the current quarter is 19.1%. The Zacks Consensus Estimate for the current quarter has moved up more than 100% in the past 60 days. The company has a trailing four-quarter earnings surprise of 20.8%, on average.The stock has rallied 22.4% in the past six months.
Kforce, Inc. Price and EPS Surprise
Kforce, Inc. price-eps-surprise | Kforce, Inc. Quote
ExlService Holdings, Inc.EXLS: This New York-based provider of operations management and analytics services holds a Zacks Rank #2 and has a VGM Score of B.
The company’s expected earnings growth rate for the current quarter is 8.3%. The Zacks Consensus Estimate for the current quarter has moved up 65% in the past 60 days. The company has a trailing four-quarter earnings surprise of 23.8%, on average.The stock has rallied 20.6% in the past six months.
ExlService Holdings, Inc. Price and EPS Surprise
ExlService Holdings, Inc. price-eps-surprise | ExlService Holdings, Inc. Quote
Luna Innovations IncorporatedLUNA: This Virginia-based company develops, manufactures, and markets fiber optic sensing, and test and measurement products worldwide. It has a Zacks Rank #2 and a VGM Score of B.
The company’s expected earnings growth rate for the current quarter is 25%. The Zacks Consensus Estimate for the current quarter has moved up 25% in the past 60 days. The company has a trailing four-quarter earnings surprise of 18.3%, on average.
Luna Innovations Incorporated price-eps-surprise | Luna Innovations Incorporated Quote
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.