The Zacks Business Services sector has had a strong fourth quarter of 2023, driven by an improving global macroeconomic environment, strong demand for services, improving supply chains and strong digital adoption. However, labor market constraints and contracting economic activity in the manufacturing sector remained headwinds.

Per the latest Earnings Trend report, earnings of S&P 500 members of the business services sector that have reported results this season grew 6% year over year on 3.3% revenue growth, with 100% of the companies beating EPS estimates and 33.3% topping sales projections.

Total quarterly earnings of the S&P 500 members of the sector are currently anticipated to display 1.9% year-on-year growth. Revenues are likely to register a 4.8% rise.

A handful of companies from the sector, like Booz Allen Hamilton Holding Corporation (BAH Quick QuoteBAH - Free Report) , FLEETCOR Technologies, Inc. , Rollins, Inc. (ROL Quick QuoteROL - Free Report) and Mastercard Incorporated (MA Quick QuoteMA - Free Report) , are expected to beat estimates in the ongoing reporting cycle.

Let us discuss the factors that are likely to have played a key role in shaping the performance of business services companies in the quarter.

Factors Influencing Q4 Results

With service activities in the pink, the demand for business services rose steadily in the quarter. The Services PMI, measured by the Institute for Supply Management, had stayed above the 50% mark for 12 consecutive months by the end of the fourth quarter.

Sector-specific factors that acted as tailwinds in the quarter are the essentiality of certain services like waste management, the rise in demand for risk mitigation and consulting services, increased expertise in improving operational efficiency and lower costs, successful work-from-home models and digital transformation.

Services pertaining to health care & social assistance, professional, scientific & technical; accommodation & food, utilities, retail trade, transportation & warehousing, and public administration stayed healthy.

Stocks Poised to Beat This Season

With the existence of several players in the sector, finding the right business services stocks that have the potential to beat on earnings can be daunting. Our proprietary methodology, however, makes it fairly simple.

You could narrow down the list of choices by looking at stocks that have the combination of a 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.

Earnings ESP is our proprietary methodology for determining stocks that have the best chances to surprise in 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 an earnings surprise is as high as 70%.

Here are our picks.

Booz Allen: The company is a provider of management and technology consulting, analytics, digital solutions, engineering, cyber services and mission operations, to governments, corporations and not-for-profit organizations.

Booz Allen is scheduled to report its third-quarter fiscal 2024 results on Jan 26. It has an Earnings ESP of +7.65% and currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The consensus mark for revenues in the to-be-reported quarter is pegged at $2.5 billion, indicating year-over-year growth of 11.1%. The consensus mark for the bottom line is pegged at $1.13 per share, indicating an increase of 5.6% on a year-over-year basis.

FLEETCOR: The company operates as a business payments company.

FLEETCOR is scheduled to report its fourth-quarter 2023 results on Feb 7. It has an Earnings ESP of +0.37% and currently carries a Zacks Rank #2.

The consensus mark for revenues in the to-be-reported quarter is pegged at $968.7 million, indicating year-over-year growth of 9.6%. The consensus mark for the bottom line is pegged at $4.47 per share, indicating 10.6% growth on a year-over-year basis.

Rollins: The company is a provider of pest and wildlife control services.

Rollins is set to report its fourth-quarter 2023 results on Feb 14. It has an Earnings ESP of +2.44% and currently carries a Zacks Rank #3.

The Zacks Consensus Estimate for ROL’s top line in the to-be-reported quarter is pegged at $750.1 million, indicating year-over-year growth of 13.4%. The consensus mark for the bottom line is pegged at 21 cents per share, indicating 23.5% growth on a year-over-year basis.

Mastercard: The payment-technology giant is scheduled to report its fourth-quarter 2023 results on Jan 31. It has an Earnings ESP of +0.39% and currently carries a Zacks Rank #3.

The consensus mark for revenues in the to-be-reported quarter is pegged at $6.5 billion, indicating year-over-year growth of 11%. The consensus mark for the bottom line is pegged at $3.08 per share, indicating 16.2% growth on a year-over-year basis.