Zacks Industry Outlook Highlights: CTPartners Executive Search, CBIZ and CoreLogic

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Oct 31, 2014, 09:30 ET

CHICAGO, Oct. 31, 2014 /PRNewswire/ -- Today, Zacks Equity Research discusses the Business Services (part 1), including CTPartners Executive Search Inc. (AMEX:CTP-Free Report), CBIZ, Inc. (NYSE:CBIZ-Free Report) and CoreLogic, Inc. (NYSE:CLGX-Free Report).

Industry: Business Services (part 1)

Link: http://www.zacks.com/commentary/35095/will-business-services-thrive-on-rising-gdp

The business services sector provides ancillary services to other players in the market. Hence, the core business of one company in this sector can be a business service for another.

Operating efficiencies demand companies to focus on functions and activities that are close to their core competence. This not only helps them to reap the benefits of economies of scale in those core functions, but also improves their competitive positioning. Importantly, this dynamic opens the door to business services companies.

Business service is considered a significant parameter of a country's economic development as the global economy is gradually considered primarily service oriented. The service sector is also emerging as a main pillar of any economy having shifted from agriculture to industry to now business service.

As per the U.S. Bureau of Economic Analysis (BEA), U.S. real GDP growth would reach 2.2% in 2014. It would further increase to 2.9% in 2015. Since business service is directly related to GDP, if the latter rises, it would point to expansion of business services.

As per the Bureau of Labor Statistics U.S. Department of Labor, the unemployment rate in U.S. is coming down. Being labor intensive, the sector is also aiding to curb down the unemployment rate in the U.S.

The sector might also attract new investors as nearly one-third of the companies under our coverage in the business service industry share profits with their shareholders via dividend payments. Notably, dividend payments help in retaining stockholders' confidence in a company. Also, companies undertake share repurchases to enhance shareholder value.

Nonetheless, the business service sector is highly fragmented, with no single service provider enjoying market dominance. As per business reports, the top 50 companies of the sector contribute less than 25% to its overall revenue. However, given its unique nature, Zacks has classified the group as one of 16 sectors (the S&P's official GIC classification has only 10 sectors where business services are grouped within the 'Industrials' sector).

Stand-Alone Zacks Sector

This industry covers an array of services that include marketing, consulting, staffing, security, telecommunications, Internet services, logistics and waste handling. In its expanded sense, the U.S. business services sector generates consolidated yearly revenue of about $620 billion, though many companies mentioned below do not strictly fall within the generally accepted definition of the industry.

Within the Zacks Industry classification, we have divided the business world into 16 sectors comprising 60 industries (at the medium or M-level) and 260 industries at the expanded or X-level. We rank all 260 X-level industries in the 16 sectors based on the earnings outlook for the constituent companies in each industry. This ranking is available in the Zacks Industry Rank page.

The way to align the ranking and outlook from the complete list of Zacks Industry Rank for the 260 industries is by dividing it into positive, neutral and negative categories depending on the Zacks Rank. The outlook for the top one-third of the list (Rank of #88 and lower) is positive, the middle one-third of the list (Rank of #89 to #176) is neutral while the outlook for the bottom one-third (Rank #177 and higher) is clear negative.

Please note that the Zacks Rank for stocks that is the core of our Industry Rank, has an impressive track record, verified by outside auditors, to foretell stock prices, in particular over the short term (1 to 3 months). We have 7 X-level industries within the Business Services sector, namely, Auction/Valuation Services, Business Information Services, Business Services, Consulting, Financial Transaction Services, Outsourcing, Staffing and Waste Removal Services.

Consulting at Zacks Rank #38 and Staffing #49 falls in the upper 1/3 of all Zacks industries and has a positive outlook.

Business Information Services at Zacks Rank #184, Outsourcing, Business Services and Financial Transaction Services #101 and Waste Removal #168 are positioned in the mid 1/3 of all Zacks industries and have a neutral outlook.

This distribution of industry ranks within the sector shows that the overall sector has a neutral outlook. Most importantly, none are positioned in the bottom 1/3 block.

Our top pick from Consulting Industry is CTPartners Executive Search Inc. (AMEX:CTP-Free Report) while from Staffing Industry we pick CBIZ, Inc. (NYSE:CBIZ-Free Report) and CoreLogic, Inc. (NYSE:CLGX-Free Report). All these stocks presently sport a Zacks Rank #1 (Strong Buy).

Earnings Review

With the third quarter earnings season well underway, about 36.4% of the companies in the business service sector with a market capitalization of 24.9% have reported so far.

Earnings for the business sector grew 12.5% in the third quarter, faring better than the overall 5.5% growth for the S&P 500. In terms of surprises, till now the sector's performance is stronger than the broader market, with 75% of Business Services companies beating earnings expectations compared with the 'beat ratio' of 67.6% for the S&P 500.

Revenues showed an improvement of 7.5%, faring much better than the S&P 500's year-over-year average of 4.4%. Here also the beat ratio was better than the S&P 500.

With the majority of companies yet to report, the sector is expected to put up a double-digit growth rate in the third quarter. Earnings are expected to grow 11% on revenue growth of 5.4%.

Currently, the sector's earnings are expected to witness accelerated improvement in the upcoming quarters. Earnings are expected to rise 14% in the fourth quarter, 14.2% in first-quarter 2015 and 15.5% in second-quarter 2015.

For 2014 and 2015, earnings are expected to improve 11.3% and 12.9%, respectively. This compares favorably with the expected 6.8% for 2014 and 11.2% for 2015 for the S&P 500. Revenue growth is expected at 4.2% for 2014 and 6.1% for 2015 for the sector compared with an improvement of 1.7% and 3.7% for the respective years for the S&P 500. For a detailed look at the earnings outlook for this sector and others, please read our Earnings Trends report.

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