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ISM Services Index Remains Robust in May: 3 Top Picks

Economic activity in the non-manufacturing sector expanded in May as the Services PMI measured by the Institute for Supply Managementtouched 50.3%. This is the fifth straight month of expansion, with 11 service industries reporting growth.

The sector has grown in 35 of the last 36 months, contracting only in December 2022. Any reading above 50 indicates that the sector is expanding.

Green Dot Corporation GDOT, Maximus MMS and Rollins ROL are among the stocks benefiting from a stable demand environment for services.

Business Activity & New Orders in the Pink, Employment Falls

The ISM Business Activity Index registered growth of 51.5% in May, growing for the 36th consecutive month. Increase in business activity was reported by 13 industries, driven by stable global demand.

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The index for New Orders registered 52.9% growth in May, marking the fifth straight month of increase. The surge was driven by growth in demand and new online contracts. In May, 11 industries reported growth.

Employment Index contracted in May, after three consecutive months of expansion. Its reading was 49.2%, down 1.6% from the April reading of 50.8%. While nine industries reported an increase in employment, seven reported a decline. Employment remains restricted since there is no clear idea about the economy's direction.

The Service Sector Remains in Good Shape

As indicated by the overall strength of Services PMI, the service sector remains in good shape, driven by a stable demand environment and improving supply chains.

Sector-specific factors that are currently tailwinds include 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.

Our Picks

Given the promising developments in the service sector, investors may consider buying sound stocks from the space. It is crucial to pick winning stocks in order to reap maximum gains.

Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.

Green Dot: This financial technology and bank holding company currently has a Zacks Rank #2 and a VGM Score of A.The Zacks Consensus Estimate for 2023 EPS has improved 0.5% in the past 30 days.

Green Dot remains focused on ensuring the long-term growth of its businesses. The company is putting in efforts toward the acquisition of long-term users of its products, improving brands and image, building market adoption and awareness of products, increasing card usage, and customer retention. Its sales and marketing efforts focus on a broad group, ranging from never-banked to fully-banked consumers.

GDOT’s longstanding relationship with Walmart WMT is a key driver of its operating revenues. The company has been providing Walmart-branded GPS cards since the launch of the Walmart MoneyCard program in 2007. Operating revenues derived from products and services offered through Walmart represented 21%, 24% and 27% of total operating revenues in 2022, 2021 and 2020, respectively.

Green Dot Corporation Price, Consensus and EPS Surprise

Green Dot Corporation Price, Consensus and EPS Surprise
Green Dot Corporation Price, Consensus and EPS Surprise

Green Dot Corporation price-consensus-eps-surprise-chart | Green Dot Corporation Quote

Maximus: This provider of business process services to government health and human services programs carries a Zacks Rank #2 and has a VGM Score of A. The Zacks Consensus Estimate for fiscal 2023 EPS has risen 6.3% in the past 30 days.

With more than 40 years of experience, Maximus has grown to be a leading operator of government health and human services programs globally. The company’s business process management expertise and ability to deliver cost-effective, efficient and high-scale solutions position it as a lucrative partner to governments.

Maximus maintains solid relationships and a strong reputation with governments and long-term contracts provide it with recurring revenue streams. The company continuously seeks long-term relationships with clients in both existing and adjacent markets. It is also focused on expanding its foothold in clinical services as well as long-term services and support. Moreover, increased longevity and more complex health needs have increased the need for government social benefit and safety-net programs. This should continue driving demand for the company’s services.

Maximus, Inc. Price, Consensus and EPS Surprise

Maximus, Inc. Price, Consensus and EPS Surprise
Maximus, Inc. Price, Consensus and EPS Surprise

Maximus, Inc. price-consensus-eps-surprise-chart | Maximus, Inc. Quote

Rollins: This pest and wildlife control services provider has a Zacks Rank #2 a VGM Score of B. The Zacks Consensus Estimate for 2023 EPS has improved 1.2% in the past 30 days.

Rollins has a balanced approach to organic and inorganic growth. The company’s organic revenue growth rate is healthy, driven by strong technician and customer retention. Enhanced benefits are expected to improve employee and customer retention in the upcoming years.

Acquisitions have been acting as a major growth catalyst in Rollins’ business strategy. With the help of strategic acquisitions, the company continues to expand its global brand recognition, geographical footprint and revenues. Notably, Rollins completed 31 acquisitions in 2022, 39 in 2021 and 31 in 2020.

Rollins, Inc. Price, Consensus and EPS Surprise

Rollins, Inc. Price, Consensus and EPS Surprise
Rollins, Inc. Price, Consensus and EPS Surprise

Rollins, Inc. price-consensus-eps-surprise-chart | Rollins, Inc. Quote

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Walmart Inc. (WMT) : Free Stock Analysis Report

Green Dot Corporation (GDOT) : Free Stock Analysis Report

Rollins, Inc. (ROL) : Free Stock Analysis Report

Maximus, Inc. (MMS) : Free Stock Analysis Report

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