The U.S. Business Services space has been benefiting from the strong fundamentals of the economy. Despite facing a record-high interest rate, an elevated inflation rate and extremely tight monetary control by the Fed, this sector has performed well in the past three months.
The Zacks defined Business Services sector has gathered momentum over the past three months and is currently within the top 32% of the Zacks Sector Rank. Since the Business Services sector is ranked in the top half of the Zacks Ranked Sectors, we expect this industry to outperform the market over the next three to six months.
Investment in business services stocks with a favorable Zacks Rank and a possible earnings beat should provide more returns in the near future. We recommend investing in three big restaurant stocks — Mastercard Inc. MA, S&P Global Inc. SPGI and Trane Technologies plc TT.
Business Services Sector at a Glance
Industries within this sector are mature, with demand for services in good shape. Revenues, income and cash flows are anticipated to gradually reach pre-pandemic levels, aiding most industry players to pay out stable dividends.
The pandemic has changed the way industry players conduct business and deliver services. The industry’s key focus is currently on channeling money and efforts toward more effective operational components, such as technology, digital transformation, data-driven decision-making and enhanced cybersecurity.
To position themselves suitably in the post-pandemic era and better utilize the opportunities that the solid fundamentals of the U.S. economy will bring, service providers are increasing their efforts toward formulating and reassessing strategic initiatives and targeting end markets.
3 Business Services Stocks to Buy Ahead of Q3 Earnings
Each of these stocks carries a Zacks Rank #2 (Buy) and has a positive Earnings ESP. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Our research shows that for stocks with the combination of a Zacks Rank #3 or better and a positive Earnings ESP, the chance of an earnings beat is as high as 70%. These stocks are anticipated to appreciate after their earnings release. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The chart below shows the price performance of our three picks in the past three months.
Zacks Investment Research
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Mastercard Inc.
Mastercard has benefited from numerous acquisitions, which helped it to grow addressable markets and drive new revenue streams. The accelerated adoption of digital and contactless solutions is providing an opportunity for MA’s business to expedite its shift to the digital mode.
MA has shown consistent revenue growth of 18% in 2022, 12.9% in 2023, and 10.7% in the first half of 2024 on the back of increased consumer spending, card usage and cross-border transactions. MA’s strong market position, new deals and expanding services support sustained growth.
Strong cash flow supports Mastercard’s growth initiatives and enables shareholder value-boosting efforts through share repurchases and dividends. MA has an Earnings ESP of +0.94%. The company will report on Oct. 31, before the opening bell.
Impressive Earnings Estimate Revisions for MA Shares
For third-quarter 2024, the Zacks Consensus Estimate currently shows revenues of $7.25 billion, suggesting an improvement of 11% year over year and EPS of $3.73, indicating an increase of 10% year over year. The company delivered positive earnings surprises in the last four reported quarters with the average beat being 3.5%.
Moreover, Mastercard has witnessed positive earnings estimate revisions for 2024 in the last seven days. At present, the Zacks Consensus Estimate indicates a year-over-year increase of 11.3% and 16.8%, respectively, for revenues and EPS in 2024. The current Zacks Consensus Estimate for 2025 revenues and EPS for MA reflects an upside of 12.2% and 16%, respectively.
S&P Global Inc.
S&P Global remains well-poised to gain from the growing demand for business information services. Constantly increasing volume of data from private and government organizations has augmented the demand for improved enterprise-wide financial performance visibility. Buyouts help SPGI to innovate, increase differentiated content and develop products. The latest service launches have been aiding SPGI’s growth.
Dividend payments and share buybacks boost investors' confidence and positively impact earnings per share. A current ratio of more than 1 indicates that SPGI will be easily paying off its short-term obligations. SPGI has an Earnings ESP of +1.84%. The company will report on Oct. 24, before the opening bell.
Excellent Earnings Estimate Revisions for SPGI Stock
For third-quarter 2024, the Zacks Consensus Estimate currently shows revenues of $3.44 billion, suggesting an improvement of 11.5% year over year and EPS of $3.64, indicating an increase of 13.4% year over year. The company witnessed positive earnings surprises in three out of the last four reported quarters while missed once, delivering an average beat of 5.9%.
Moreover, S&P Global has witnessed positive earnings estimate revisions for 2024 in the last seven days. At present, the Zacks Consensus Estimate indicates a year-over-year increase of 10.3% and 17.4%, respectively, for revenues and EPS in 2024. The current Zacks Consensus Estimate for 2025 revenues and EPS for MA reflects an upside of 6.7% and 10%, respectively.
Trane Technologies plc
Trane Technologies benefits from its strong Commercial HVAC markets. TT prioritizes improving its business operating system and innovation through business transformation initiatives and prudent investments.
TT exceeded the goal of $300 million in annualized savings in 2023. TT has a track record of repurchasing shares and paying dividends consistently. Such moves instill investor confidence and positively impact its bottom line. TT has an Earnings ESP of +1.17%. The company will report on Oct. 30, before the opening bell.
Solid Earnings Estimate Revisions for TT Shares
For third-quarter 2024, the Zacks Consensus Estimate currently shows revenues of $5.31 billion, suggesting an improvement of 8.8% year over year and EPS of $3.23, indicating an increase of 15.8% year over year. The company delivered positive earnings surprises in the last four reported quarters with the average beat being 8.1%.
Moreover, Trane Technologies has witnessed positive earnings estimate revisions for 2024 in the last 30 days. At present, the Zacks Consensus Estimate indicates a year-over-year increase of 10.7% and 20.5%, respectively, for revenues and EPS in 2024. The current Zacks Consensus Estimate for 2025 revenues and EPS for MA reflects an upside of 7.3% and 13.3%, respectively.
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