3 Business Service Stocks Set to Beat Q1 Earnings Estimates

·5 min read

During the first quarter of 2021, amid coronavirus-induced market uncertainty across the globe, the business services space steadily gathered steam on the back of gradual resumption of business activities, increased adoption and success of the work-from-home model, rise in demand for risk mitigation and consulting services, and expertise to improve operational efficiency and reduce costs.

Providers of essential and non-delayable services, such as waste removal and building maintenance remained resilient to the pandemic-induced disruptions. Staffing benefited as non-farm payroll employment rose through the quarter, with a record 266,000 rise in April. Notable job gains were witnessed in leisure and hospitality, other services, and local government education.

Also, the last-minute deal on the $900-billion pandemic-relief package, ease in restrictions on business activities, and increased distribution of vaccines lifted sentiments.

Figures That Validate This Growth

The sector seeks to benefit from the growth of the overall economy, which is expected to strengthen further on success of the ongoing mass vaccination program, which could significantly curb the impacts of the virus. Meanwhile, a steady recovery is evident from the latest fourth-quarter 2020 GDP number, which according to the "third" estimate released by the Bureau of Economic Analysis, increased at an annual rate of 4.3% compared with 4.1% increase in the second estimate.

Per the Institute for Supply Management (ISM), Manufacturing PMI logged 60.7% growth in April, which came a tad below 64.7% in March. Despite the fall, a reading above 50 denotes expansion in activity and the April PMI reading marks expansion in the overall economy for 11 consecutive months after April’s contraction in 2020, primarily due to the pandemic. Notably, all 18 manufacturing industries reported growth in April.

Non-manufacturing activities recorded 62.7% growth in April, slightly lower than the all-time high of 63.7% reported in March by the Services PMI measured by ISM. This is the 11th consecutive month of expansion for the services sector. In the last 135 months, the sector witnessed growth in all months except two. As many as 17 services industries reported growth in April.

Stocks Poised to Beat

We have narrowed down the list of choices by looking at stocks that have the combination of a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP is our proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It is the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

Let’s have a look at the three picks set to report first-quarter 2021 results.

Clear Channel Outdoor Holdings, Inc. CCO: This Texas-based company owns, operates, and sells advertising displays in the United States and internationally. The company has been working on strengthening its liquidity, refinancing debt and reducing its expenses, along with the continued expansion of its digital platform and data analytics products. The digital transformation of its business has been a positive move to enhance its capabilities.

Clear Channel has an Earnings ESP of +30.67% and currently carries a Zacks Rank #2. The Zacks Consensus Estimate for to-be-reported quarter’s EPS has moved up 13% in the past 90 days, suggesting a year-over-year increase of 2.6%. Further, the company has a trailing four-quarter earnings surprise of 3.3%, on average.

Clear Channel Outdoor Holdings, Inc. Price and EPS Surprise

Clear Channel Outdoor Holdings, Inc. Price and EPS Surprise
Clear Channel Outdoor Holdings, Inc. Price and EPS Surprise

Clear Channel Outdoor Holdings, Inc. price-eps-surprise | Clear Channel Outdoor Holdings, Inc. Quote

Montrose Environmental Group, Inc. MEG: This California-based stock operates as an environmental services company in the United States. The company’s top line has been benefiting from acquisitions and organic growth. Increased revenues in its Measurement and Analysis and Remediation and Reuse segments, coupled with growth in Assessment, Permitting and Response segment acted as other tailwinds. Revenue growth, improvement in operational metrics and lower expenses have been aiding bottom-line growth.

The company has an Earnings ESP of +160.61% and currently carries a Zacks Rank of 3. The consensus mark for the to-be-reported quarter’s earnings has been revised 11.2% upward in the past 60 days.

Montrose Environmental Group, Inc. Price and EPS Surprise

Montrose Environmental Group, Inc. Price and EPS Surprise
Montrose Environmental Group, Inc. Price and EPS Surprise

Montrose Environmental Group, Inc. price-eps-surprise | Montrose Environmental Group, Inc. Quote

Ritchie Bros. Auctioneers IncorporatedRBA: This Canada-based asset management and disposition company, sells industrial equipment and other durable assets through its unreserved live on site auctions, online marketplaces, listing services, and private brokerage services.

The company’s top line has been benefiting from strength across Service revenues and Inventory sales revenues. Focus on technological advancements and optimizing operating costs should boost the company’s growth. Improvement in operational metrics and lower expenses have been aiding bottom-line growth.

Ritchie Bros has an Earnings ESP of +25.75% and currently carries a Zacks Rank of 3. The Zacks Consensus Estimate for to-be-reported quarter’s EPS has moved up 25% in the past 90 days, suggesting a year-over-year increase of 14.3%. Further, the company has a trailing four-quarter earnings surprise of 25.4%, on average.

Ritchie Bros. Auctioneers Incorporated Price and EPS Surprise

Ritchie Bros. Auctioneers Incorporated Price and EPS Surprise
Ritchie Bros. Auctioneers Incorporated Price and EPS Surprise

Ritchie Bros. Auctioneers Incorporated price-eps-surprise | Ritchie Bros. Auctioneers Incorporated Quote

Zacks Top 10 Stocks for 2021

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Clear Channel Outdoor Holdings, Inc. (CCO) : Free Stock Analysis Report

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