Two pieces of news provide a flicker of hope amid the doom and gloom.
CHICAGO, March 20, 2014 /PRNewswire/ -- Today, Zacks Equity Research discusses the Business Services, including Exlservice Holdings, Inc. (Nasdaq:EXLS-Free Report), ExamWorks Group, Inc. (NYSE:EXAM-Free Report), CoreLogic, Inc. (NYSE:CLGX-Free Report) and Clean Harbors Inc. (NYSE:CLH-Free Report).
Industry: Business Services
Earnings for the sector grew 10.6% in the fourth quarter faring better than the overall 9.4% growth for the S&P 500. The Q4 earnings growth was an improvement over 8.6% growth in the third quarter. Revenues showed an improvement of 5.6% faring much better than the S&P 500's year-over-year average of 0.8%. Revenue growth also improved sequentially.
In terms of surprises, the sector's performance was weaker than the broader market, with 42.9% of Business Services companies beating earnings expectations compared with the 'beat ratio' of 64.3% for the S&P 500 as a whole.
Looking ahead, 2014 and 2015 earnings are expected to improve 12.3% and 13.7% respectively. This compares favorably to the +8.1% and 11.6% growth for the S&P 500 in 2014 and 2015.. Revenue growth is expected at 4.9% for 2014 and 6.1% for 2015 for the sector compared with a minimal improvement of 1.1% and 2.2% for the respective years for the S&P 500. The Zacks Business Services sector as a whole accounts for 3.2% of the S&P 500 index's total market capitalization and is expected to bring in roughly 2.3% of the index's total earnings in 2014.
For a detailed look at the earnings outlook for the Business Services and other sectors, please check our weekly Earnings Trends report.
Considering Zacks Rank, share prices, earnings surprise history and future growth prospects we think the following two stocks can enrich ones portfolio.
Exlservice Holdings, Inc. (Nasdaq:EXLS-Free Report): This provider of business process solutions, utilizing operations management, analytics and technology primarily in the United States and the United Kingdom delivered positive earnings in the last four quarters in with an average beat of almost 8.3%. Share prices also gained about 11% year to date. Given the prospect of the company we find more room for upside. Our model projects earnings growth of about 16% over the long term.
The growth drivers include new relations signed with initial scope of several million dollars in annual contract value once implemented. The company also continues to benefit from strong secular demand. U.S.-based health insurance will continue to experience rising volumes, pressure to improve patient outcomes and a need to comply with regulatory change.
The company also engages in share buyback that down the line would enhance shareholder value.
ExamWorks Group, Inc. (NYSE:EXAM-Free Report): This provider of independent medical examinations (IMEs), peer and bill reviews, Medicare compliance and other related services delivered positive earnings in three of the last four quarters in with an average beat of almost 29.3%. Share prices also gained about 17% year to date. Given the prospect of the company, we find more potential left. Our model projects earnings to grow about 20% over the long term.
The company continues to benefit from market share gains that lead to superior organic revenue growth, technology solutions that drive operating leverage and expanding margins, and considerable cash flow. Its compelling inorganic growth story is also expected to boost its performance level.
Both these stocks carry a Zacks Rank #2 (Buy).
Stocks to Avoid
Benchmarking the above attributes we also have two stocks that you may like to avoid.
CoreLogic, Inc. (NYSE:CLGX-Free Report): This provider of property, financial and consumer information, analytics, and services in the United States, Australia and New Zealand continues to suffer from the impact of lower mortgage volumes, integration costs related to the BoA integration cost as well as severance and facilities charges.
The company posted negative surprise with an average of 1.1% over the last four quarters. The underperformance was reflected in share price, which declined 10.6% year to date.
Clean Harbors Inc. (NYSE:CLH-Free Report): This provider of environmental, energy, and industrial services primarily in the United States, Puerto Rico and Canada delivered negative surprise of 7.05% in the last four quarters. Share prices also showed downward movement by 10.2% year to date.
In mid-January, the refining majors led by Motiva, lowered their group two lubricant pricing by 25–30 cents. This pricing affected the company's contracted base oil volumes.
Both these stocks carry a Zacks Rank #5 (Strong Sell).
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