Looking back at the first quarter of 2021, we see the service sector steadily gathering steam. The sector continued rebounding from the pandemic-induced weakness, aided by the recovering economy, and manufacturing and non-manufacturing strength that have been increasing since the lockdown relaxations stared. Notably, the last-minute deal on the $900-billion pandemic-relief package, ease in restrictions on business activities, and increased distribution of vaccines have lifted sentiments.

Strengthening Economy Driving the Sector

The sector is a major beneficiary of the economy, which can gather further strength on success of the ongoing mass vaccination program that could significantly curb down 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% as against the 4.1% increase in the second estimate.

Notably, economic activity in the manufacturing sector expanded 3.9% from March to February, as the Manufacturing PMI measured by Institute for Supply Management (ISM) touched 60.8%. This is the 10th consecutive month of expansion after April’s contraction that had interrupted an impressive growth rally of 131 consecutive months.

Non-manufacturing activities clocked 8.4% growth from March to February, as the Services PMI measured by ISM touched the all-time high of 63.7%. This is the 10th consecutive month of expansion after a two-month period of contraction that followed 122 straight months of expansion.

Service Providers Keep Evolving to Fuel Growth

Counter strategies in response to the pandemic continued through the January-March quarter. Consulting and outsourcing firms continued benefiting from successful home-working models, technology adoption and digital transformation.

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 916,000 rise in March.

Thus, their stellar performance will likely be reflected in the top- and bottom-line numbers placing the companies solidly to beat estimates.

Selecting 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%.

Avis Budget Group, Inc. (CAR Quick QuoteCAR - Free Report) : This provider of car and truck rentals, car sharing, and ancillary services operates through distinct global brands that focus on different market segments and complement other brands in their respective regional markets. Acquisitions over time have enabled the company to expand its global footprint and enhance brand presence.

The company has an Earnings ESP of +15.22% 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.

S&P Global Inc. (SPGI Quick QuoteSPGI - Free Report) : This ratings, benchmarks, analytics, and data provider remains well poised to gain from the growing demand for business information services for risk mitigation. The company’s bottom line remains in good shape driven by revenue strength and benefits of productivity initiatives.

S&P Global has an Earnings ESP of +1.49% and currently carries a Zacks Rank of 3. The Zacks Consensus Estimate for to-be-reported quarter’s EPS moved up 6.5% in the past 60 days, suggesting a year-over-year increase of 14.7%.

Fiserv, Inc. : This payment and financial services technology provider continues to focus on improving product and service quality through leveraging its size and scale of operations, reducing costs and effectively integrating First Data operations. The company is streamlining its overall cost structure through the rationalization of duplicate costs to attain planned cost synergies. A diversified product portfolio continues to yield a steady flow of customers.

Fiserv has an Earnings ESP of +0.56% and currently carries a Zacks Rank #3. The consensus estimate for the to-be-reported quarter’s EPS has remained unchanged at $1.13 over the past two months. Earnings are likely to increase 14.1% year over year.

Paychex, Inc. (PAYX Quick QuotePAYX - Free Report) : This integrated human capital management solutions provider has grown meaningfully over the years by providing industry-leading service and technology solutions to its clients and their employees. Its solid business model, diversified products and services, and strategic acquisitions ensure long-term sustainable growth.

The company has an Earnings ESP of +0.02% and currently carries a Zacks Rank of 3. The consensus mark for the to-be-reported quarter’s earnings has been revised 1.5% upward in 60 days’ time to 67 cents, calling for a year-over-year jump of 9.8%.

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