Key Predictions for Earnings Reports of IT, RSG and ADP

The earnings season is well past the halfway mark. More than 54% the S&P 500 companies have already released results till Oct 27. Total earnings for these companies (accounting for 64.2% of the index’s total market capitalization) are up 8.7% year over year on 6.7% higher revenues, with 75.7% beating earnings estimates and 66.2% surpassing top-line expectations. Based on the hitherto observed pattern, the July-September quarter is anticipated to register modest single-digit percentage earnings growth on a year-over-year basis.

Per the latest Earnings Preview, overall earnings for all the S&P 500 companies are expected to be up 5.4% on 5.5% growth in revenues. It represents a slightly tempered growth projection compared with the double-digit growth rate of the previous quarter, largely due to drag from the insurance industry that was hit hard by devastating hurricanes, Harvey and Irma. However, total earnings for the S&P 500 are on track to reach a new all-time quarterly record, surpassing the previous high reached in the preceding earnings season. Experts widely believe that earnings growth is likely to improve steadily in 2018 and beyond.

The Business Services sector appears modest this quarter. For the sector, earnings are expected to improve 6.6% year over year while sales are touted to rise 3.7% due to relatively stable economy.

Let’s have a sneak peek at three major Business Services stocks scheduled to report earnings on Nov 2 to see how things are shaping up for the upcoming results.

With diligent execution of operational plans, Gartner, Inc. IT has recorded double-digit growth in key metrics for more than a decade. In addition, this performance-driven firm has a strong cash flow and a healthy balance sheet position. It has a vast, untapped market opportunity worth an estimated $61 billion. The acquisition of CEB, an industry leader in providing best practice and talent management insights, further reinforces Gartner’s market strength. The combination of its analyst-driven, syndicated research and advisory services with CEB’s expertise is likely to provide a comprehensive and differentiated suite of services portfolio across the globe.

The Zacks Consensus Estimate for Research segment revenues is currently pegged at $687 million, up from $462 million reported in the year-ago quarter. Revenues from the Event segment are expected to be $38 million compared with reported revenues of $33 million in the year-earlier quarter. However, revenues from the Consulting segment are anticipated to be $75 million, down from $79 million reported in the year-ago quarter. (Read More: Will Higher Research Revenues Aid Gartner Q3 Earnings?)

For the impending quarter, the company has an Earnings ESP of -0.48%. Gartner currently has Zacks Rank #2 (Buy). A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) for a likely earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

Republic Services, Inc. RSG has significantly expanded its product offerings in the e-commerce platform to address the evolving needs of the customers. This low-cost sales channel is likely to aid the company in the quarter. At the same time, Republic Services is focused on increasing operational efficiency by converting its fleet to compressed natural gas collection vehicles and modifying rear-loading trucks to automated-side loaders, which will reduce costs and improve profitability. The company is realigning its field support functions by combining two organizational layers. It expects these initiatives to contribute approximately $25 million of annual cost savings from 2018.

The Zacks Consensus Estimate for Collection segment revenues is currently pegged at $1,883 million, up from $1,814 million reported in the year-ago quarter. Revenues from the Landfill segment are expected to be $318 million compared with reported revenues of $293 million in the year-earlier quarter. Revenues from the Transfer and Disposal Services segment are anticipated to be $136 million, up from $126 million reported in the year-ago quarter. (Read More: High Collection Revenues to Aid Republic Q3 Earnings?)

Our proven model does not conclusively show that Republic Services is likely to beat earnings this quarter as it does not possess the key components. Its Earnings ESP is currently +0.32%. However, Republic Services has a Zacks Rank #4 (Sell).

Automatic Data Processing Inc.’s ADP top-line growth is anticipated to be 5% in the quarter, which is in the lower end of its 5-6% growth forecast for first-quarter fiscal 2018. We expect improving bookings to positively affect revenues along with strong growth in the Professional Employer Organization (PEO) Services segment.

The Zacks Consensus Estimate for revenues is currently pegged at $3.06 million. The consensus estimate for the PEO Services segment is $892 million. (Read More: ADP's Q1 Earnings to Gain From Higher Bookings, PEO Revenues)

Our proven model does not conclusively show that Automatic Data Processing is likely to beat earnings this quarter as it does not possess the key components. Automatic Data Processing’s Earnings ESP is currently -0.35% and it has a Zacks Rank #3.

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