5 Great Business Services Stocks To Buy Ahead Of Q1 Earnings
Zacks Investment Research | May 03, 2018 08:52AM ET
As markets growth increasingly volatile, fueled primarily by inflationary fears, it is easy to forget that the economy remains on a firm footing. Fresh evidence of this fact was provided by the ADP report for April which revealed that job additions had come in above 200,000 for the six straight month. Incidentally, professional and business services contributed nearly half of all the job additions experienced during April.
Moreover, the outlook of the business services sector is firmly tied to the broader economy. It is widely expected that the business friendly approach of the Trump administration will provide a further boost to the U.S. economy.
Further, earnings and revenues from the sector are likely to improve in the first quarter, which makes it a good idea to pick up select business services stocks which are also slated to outperform their earnings estimates.
Professional and Business Services Lead Job Additions
In April, private sector job additions came in at 204,000, according to a report from ADP and Moody's Analytics. The figure was in line with most expectations, though it does represent a decline from the 228,000 additions made in March, revised downward from the initial figure of 241,000.
According to co-head of the ADP Research Institute, Ahu Yildirmaz, job additions made by the professional and business services sector “accounted for more than half of all jobs” added during April. At 58,000, the figure is much higher than the number of jobs added by education and health or leisure and hospitality, which amounted to 39,000 and 36,000, respectively.
This is yet another indicator of the growing importance of the business services sector, particularly in the United States and the greater North American region. According to the Professional Services Global Market Report for 2018, North America contributed 37% of total demand for professional services in 2017. This was likely due to huge demand for legal, accounting and other professional services across all major business sectors.
Resilient Economy, Trump’s Policies to Aid Sector
Currently, the U.S. economy is on a firm footing with stable GDP levels, an improving employment scenario, inflation hitting 2% and momentum gained by oil prices. The Trump administration remains focused on improving the ease of doing business, exemplified by recently passed tax cuts. It is widely expected that it will pursue its agenda of deregulation aggressively.
Moreover, total Q1 earnings for the business services sector are expected to be up 17.1% on 5.2% higher revenues as of Apr 27, 2018. That’s far better than the more vaunted autos and conglomerates sectors, earnings for which are expected to decline by 0.8% and increase by 3%, respectively during the first quarter. Overall, total Q1 earnings are expected to be up 22.6% from the same period last year on 8.4% higher revenues. (Read: Zacks Investment Research
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