The International Monetary Fund recently cut its global growth projections for this year and the next amid the deteriorating macro backdrop with the relentless rise in inflation and the geopolitical war. However, despite the economic uncertainties, we think business services stocks Civeo (CVEO), ARC Document (ARC), TriNet Group (TNET), and The Brink’s (BCO) might be ideal buys, given their fundamental strength. Read on…

The world economy seems crippled by the soaring inflation amid the geopolitical war and tighter financial conditions. The International Monetary Fund slashed its global growth projections for 2022 and 2023, citing the global macroeconomic pressures. It now expects the world economy to grow 3.2% this year, further slowing to 2.9% next year. The organization pinned the world’s economic outlook as “gloomy and more uncertain.”

On the other hand, the Fed will likely go ahead with another rate hike this week. However, traders are assessing the chances of the Fed pausing its inflation-fighting efforts amid signs of the economy’s slowdown.

Moreover, this month, initial jobless claims hit their highest level since mid-November. Claims reached 251,000 for the week ended July 16, up 7,000 from the prior week. This indicates a cooling labor market.

Despite the uncertain macro backdrop, we think fundamentally strong business services stocks Civeo Corporation (CVEO), ARC Document Solutions, Inc. (ARC), TriNet Group, Inc. (TNET), and The Brink’s Company (BCO) might be ideal buys now. The global business process outsourcing market is expected to reach $513 billion by 2030, growing at a CAGR of 8.5%.

Civeo Corporation (CVEO)

CVEO is a workforce accommodations company that provides hospitality services to the natural resource industry in Canada, Australia, and the United States. The company develops lodges and villas, offers food and maintenance, and provides development activities for workforce accommodation facilities.

On July 18, CVEO announced that it was awarded a contract renewal to continue providing rooms and hospitality services at its Wapasu Lodge in the Canadian oil sands for Imperial Oil Resources Limited. This might benefit the company.

CVEO’s revenue increased 32.1% year-over-year to $165.68 million in the first quarter that ended March 31. Its operating income grew 142.8% from the year-ago value to $4.24 million, while its net income improved 120.2% year-over-year to $1.91 million. The company’s net income per share increased 108.6% from its year-ago value to $0.06.

The consensus EPS estimate of $0.44 for the third quarter ending September 2022 indicates a 10,132.6% improvement year-over-year. The consensus revenue is expected to be $172.78 million for the same period, indicating a growth of 11.4% from the prior-year period.

The stock has gained 33.8% over the past year and 38.9% year-to-date to close its last trading session at $26.62.

CVEO’s POWR Ratings reflect this promising outlook. The company's overall A rating translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

CVEO is rated an A in Growth and Sentiment and a B in Value, Stability, and Quality. Within the B-rated Outsourcing - Business Services industry, it is ranked #1 out of 43 stocks.

To see additional POWR Rating for Momentum for CVEO, click here.

ARC Document Solutions, Inc. (ARC)

ARC provides digital printing and document-related services in the United States. The company offers managed print services, cloud-based document management software, and other digital hosting services.

ARC announced in April that its board of directors had declared a quarterly dividend of $0.05 per share, payable to shareholders on August 31. This reflects upon the cash generation ability of the company.

ARC’s net sales increased 12.6% year-over-year to $69.49 million for the first quarter that ended March 31. Its adjusted net income attributable to ARC came in at $1.98 million, representing a 115% year-over-year growth. Its adjusted EBITDA grew 3.6% from the prior-year quarter to $9.08 million. The adjusted EPS increased 150% from the prior-year period to $0.05.

Analysts expect ARC’s EPS for the fiscal year 2022 to be $0.26, representing an 18.2% year-over-year growth. The company’s revenue is expected to grow 5.4% from the prior year to $286.90 million for the same period.

ARC has gained 25.5% over the past year and 1.5% over the past five days to close its last trading session at $2.61.

It is no surprise that ARC has an overall A rating, which equates to a Strong Buy in our POWR Rating system.

ARC has an A grade for Value and Quality and a B for Growth and Sentiment. It is ranked #2 in the Outsourcing - Business Services industry.

Beyond what we’ve stated above, we have also given ARC grades for Momentum and Stability. Get all the ARC ratings here.

TriNet Group, Inc. (TNET)

TNET provides human resources (HR) solutions, payroll services, employee benefits, and employment risk mitigation services for small and midsize businesses in the United States.

In May, TNET announced the launch of a major redesign of its customer-facing technology platform. The updated platform is expected to allow SMBs easier access to necessities when needed. This might enhance customer satisfaction.

For the first quarter that ended March 31, TNET’s total revenues increased 14.9% year-over-year to $1.22 billion. Its operating income rose 47.8% from the prior-year quarter to $204 million. Adjusted net income and adjusted net income per share came in at $168 million and $2.55, up 51.4% and 53.6% from the prior-year period.

Street EPS estimate for the fiscal year ending December 2023 of $5.61 indicates a 9.3% year-over-year improvement. Likewise, Street revenue estimate for the same year of $1.33 billion indicates an improvement of 7.4% from the prior year. Additionally, TNET has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.

Over the past year, TNET’s stock has gained 10.4% to close its last trading session at $80.91. It has gained 5.6% over the past month.

This promising prospect is reflected in TNET’s POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.

TNET has a B grade for Value, Stability, and Quality. It is ranked #5 in the same industry.

Click here to see the additional POWR Ratings for TNET (Growth, Momentum, and Sentiment).

The Brink’s Company (BCO)

BCO provides secure transportation, cash management, and other security-related services internationally. The company’s offerings include armored vehicle transportation of valuables, automated teller machine (ATM) management services, network infrastructure, and cash-in-transit services.

On May 5, BCO declared a regular quarterly dividend of 20 cents per share on its common stock, which was payable on June 1. This reflects upon the company’s ability of shareholder returns.

BCO’s revenue increased 9.8% year-over-year to $1.07 billion in the first quarter of 2022. Its non-GAAP operating profit grew 24.4% from the year-ago value to $112.10 million. The company’s non-GAAP income from continuing operations attributable to BCO rose 38.9% from the prior-year period to $55.70 million, while its non-GAAP EPS stood at $1.15, up 45.6% from the prior-year period.

Analysts expect revenue growth of 5.4% year-over-year to $1.11 billion for the second quarter (ended June 2022).

The stock has gained 1.4% intraday to close its last trading session at $55.51.

BCO's overall A rating translates to Strong Buy in our POWR Rating system. The stock has a B grade for Growth, Value, Stability, and Sentiment. It is ranked #4 in the Outsourcing - Business Services industry.

Beyond what we’ve stated above, we have also given BCO grades for Momentum and Quality. Get all the BCO ratings here.

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CVEO shares were trading at $27.15 per share on Tuesday afternoon, up $0.53 (+1.99%). Year-to-date, CVEO has gained 41.63%, versus a -17.15% rise in the benchmark S&P 500 index during the same period.

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About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.

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