Staffing Industry
Better to be Early than Late
Overview
l We are initiating on shares of KFRC (price target of $15), MAN (price target
of $63), and TBI (price target of $16) with BUY ratings and shares of KELYA,
MPS, and RHI with NEUTRAL ratings.
l While the economic climate remains cool and conditions in the labor market
remain less than ideal, we believe that one of the first areas of the business
services sector to benefit from economic recovery will be the temporary
staffing market.
l The following points summarize our thoughts on why investors should begin
becoming more constructive on the staffing group: (1) temporary staffing
tends to be a “first in, first out” mover relative to the economy, (2) desire of
employers to be more flexible with staffing plans, (3) market remains highly
fragmented, we expect some smaller players to exit the market or be
consolidated, (4) staffing companies expanding into higher margin HR talent
management offerings, (5) aging workforce demographics will spur additional
demand for skilled laborers/employees, (6) companies generate significant
cash flow and have pristine balance sheets, and (7) upon a turn in industry
fundamentals we anticipate companies to return cash to shareholders.
l We admit the economic picture remains less than ideal, however, we believe
staffing firms have improved their cost structure relative to the past economic
slowdown, and the pace that jobs have been reduced in the underlying
economy has surpassed any other recent economic downturn.
Conclusion
We view shares of staffing firms with a positive bias as we believe the
company’s are nearing a bottom in near-term results and have significant
long-term growth potential. We believe over the next business cycle staffing
firms should be able to outperform business services peers as they expand their
portfolio of staffing assignments, benefit from economic growth, and gain
market share versus smaller competitors. We expect the current operating
environment to challenge staffing company results for the next few
months/quarters. While it is difficult to accurately forecast when the current
recession will come to end, we are confident that staffing companies will be
among the first companies to benefit from an improving economy. We anticipate
that in 2009, staffing industry revenues will likely contract (approximately 20%)
with growth resuming in 2010 (assuming stability in the economy).
Symbol: Price
Target
Price Rating
EPS
Cur Qtr
EPS
Cur Year
EPS
Out Year
Mkt.
Cap (M)
KELYA $11.43 NA N $(0.26)e $(1.15)e $(0.25)e $398.3
KFRC $11.13 $15.00 B $0.09e $0.35e $0.45e $426.9
MAN $50.85 $63.00 B $0.17e $0.73e $1.25e $3,985.8
MPS $9.81 NA N $0.02e $0.11e $0.19e $913.7
RHI $25.66 NA N $0.03e $0.17e $0.39e $3,896.9
TBI $13.18 $16.00 B $0.13e $0.14e $0.30e $576.9