The coronavirus pandemic has dealt a heavy blow to almost every industry, with business services being no exception. However, going by the first half of the year, the business services industry has been more resilient compared with the other industries despite the worldwide manufacturing suspension and supply-chain disruptions.
Sector Shaping Up With Gradual Economic Recovery
With the gradual lifting of lockdown restrictions around May and June, investors have been noticed to gain some optimism. While most sectors are struggling to cope with the market mayhem, the business services space has been benefiting 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.
Both manufacturing and non-manufacturing activities are gathering steam, helping the demand environment for business services become healthier. Per the most recent 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% growth rate 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.
4 Companies to Bet On
Here, we suggest four companies that we believe have or have adjusted their business models to make them more relevant to the challenging situations of today. These companies have resources and strategies in place that help them sail through the testing times.
Operations management and analytics services provider ExlService Holdings EXLS currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The company’s earnings are estimated to increase 1.9% in 2020 and 10.2% in 2021. The expected rise will be driven by the company’s continuous investments toward operational efficiency and customer experience enhancement.
ExlService’s business model is well capable of catering to the pandemic-driven increased demand for digital and analytics capabilities, and need to manage costs for its clients. The company is well posed for a solid financial performance on a strongly-established work-from-anywhere model that supports a robust demand environment. Notably, the Zacks Consensus Estimate for 2020 has moved up 32.9% over the past two months.
ExlService Holdings, Inc. Price, Consensus and EPS Surprise
ExlService Holdings, Inc. price-consensus-eps-surprise-chart | ExlService Holdings, Inc. Quote
FTI Consulting FCN, a leading provider of business advisory services to manage change, mitigate risk, and resolve disputes worldwide also flaunts a Zacks Rank of 1.
Although the company’s earnings are expected to decrease 2.4% in 2020 due to the pandemic-induced weakness in certain segments, the figure will likely rise 16.7% in 2021. The company is anticipated to see healthy demand in a number of verticals such as oil and gas exploration, production and drilling, department stores, financials, automotive, telecommunication services, restaurants, healthcare, entertainment, and entertainment venues.
Through the rest of the year, it is expected to see a pandemic-driven rise in demand for its expertise in crisis communications, distressed transactions, litigations associated with material adverse-effect clauses, and disputes pertaining to business interruption. Remarkably, estimates for 2020 have moved 2.2% north over the past 2 months.
FTI Consulting, Inc. Price, Consensus and EPS Surprise
FTI Consulting, Inc. price-consensus-eps-surprise-chart | FTI Consulting, Inc. Quote
Pest and termite control services provider Rollins ROL carries a Zacks Rank #2 (Buy), at present. The company’s earnings are expected to be up 6.9% in 2020 and 8.6% in 2021. Estimates for 2020 have moved up 13% in two months’ time.
Rollins is benefiting from aggressive cost-reduction efforts, and routing and scheduling enhancements. The company’s recent cost-reduction efforts included the coronavirus pandemic-induced temporary reduction of upper management‘s salaries, and omission of non-essential travel and capital expenditures.
The company’s business has been deemed as an essential service by the Department of Homeland Security and thus, its brands remain open in every part of the world, where it operates, during such uncertain times.
Rollins, Inc. Price, Consensus and EPS Surprise
Rollins, Inc. price-consensus-eps-surprise-chart | Rollins, Inc. Quote
Non-hazardous solid waste collection, transfer, disposal, recycling, and environmental services provider Republic Services RSG carries a Zacks Rank #2.
Though the company’s earnings are likely to be down 5.4% in 2020 due to the pandemic-induced significant reduction in service levels, the figure is anticipated to rise 10.9% next year with the resumption of operations. The company will benefit from continuous investments toward operational efficiency and enhancement of customer experience in the days to come.
Acquisitions are Republic Services’ favorite mode of improving its market position and growing cash. The company has already invested $124 million, which is expected to grow to $600-$650 million by the end of this year. Markedly, estimates for the ongoing year moved 12.1% north in the past two months.
Republic Services, Inc. Price, Consensus and EPS Surprise
Republic Services, Inc. price-consensus-eps-surprise-chart | Republic Services, Inc. Quote
Zacks’ Single Best Pick to Double
From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.
With users in 180 countries and soaring revenues, it’s set to thrive on remote working long after the pandemic ends. No wonder it recently offered a stunning $600 million stock buy-back plan.
The sky’s the limit for this emerging tech giant. And the earlier you get in, the greater your potential gain.
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FTI Consulting, Inc. (FCN): Free Stock Analysis Report
Republic Services, Inc. (RSG): Free Stock Analysis Report
ExlService Holdings, Inc. (EXLS): Free Stock Analysis Report
Rollins, Inc. (ROL): Free Stock Analysis Report
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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.