The Zacks Analyst Blog Highlights: Korn Ferry, Manpower, TrueBlue, Kforce and
CHICAGO, Sept. 23, 2013
CHICAGO, Sept. 23, 2013 /PRNewswire/ -- Zacks.com announces the list of stocks
featured in the Analyst Blog. Every day the Zacks Equity Research analysts
discuss the latest news and events impacting stocks and the financial markets.
Stocks recently featured in the blog include the Korn Ferry International
(NYSE:KFY-Free Report), Manpower (NYSE:MAN-Free Report), TrueBlue
(NYSE:TBI-Free Report), Kforce (Nasdaq:KFRC-Free Report) and On Assignment
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of
the Day pick for free.
Here are highlights from Friday's Analyst Blog:
The Fed Must Like Staffing Stocks
The decision by the Federal Reserve to maintain the full level of its large
scale asset purchase program at the September 18 FOMC meeting is a sign
monetary policy will remain fully behind the goal of normalized labor market
conditions. Although non-farm payrolls have been expanding at a 1.5% to 1.6%
year over year rate in recent months, the pace of growth and labor market
conditions are not meeting the Fed's goal.
Furthermore, average hourly earnings of production and non-supervisory workers
have begun to rise, but remain low adjusted for inflation. Wages were up 2.23%
year over year in August compared to a recent low of 1.33% year over year in
the summer of 2012. The consumer price index is up about 1.5% over the last
year. A healthy labor market recovery would likely see a meaningful rise in
inflation adjusted wage growth.
Monetary policy targets job growth:
There is a great debate about the effectiveness of monetary policy in creating
economic growth and employment, but the Fed's mandate is aimed at maximizing
employment and generating stable low inflation. With inflation calm, the Fed
has the ability to focus its policy on job growth. Real job creation is more
likely to come from fiscal policy changes in Washington, but the inability of
political leaders to craft a plan and the placement of ideology above job
creation leaves the Fed the main policy lever for improving labor market
Assuming the Fed will work wholeheartedly to bolster job growth, it might be
worth focusing on staffing stocks. These stocks are likely to perform well in
an expanding job market, and the sector may have the tailwind of Fed policy at
Payroll growth and labor stock trends:
The graphic below displays the relationship between the year over year change
in payrolls and the average price of these labor service stocks – Korn Ferry
International (NYSE:KFY-Free Report), Manpower (NYSE:MAN-Free Report),
TrueBlue (NYSE:TBI-Free Report), and Kforce (Nasdaq:KFRC-Free Report). The
stocks were able to perform strongly between the summer of 2002 and early 2006
and between early 2009 and early 2012 when the labor market was showing
expanding growth. The stocks have also been able to trade well in recent
months on the back of very steady job growth.
It should be noted that the deceleration in payroll growth tended to lead to
lower labor services stock prices in 2000 and again in 2006. The lead on the
upswing was more mixed with labor services stocks following the gain in job
growth in 2003, but ahead of job growth in 2009.
Unemployment claims and staffing stocks:
The graphic following highlights the relationship between staffing stocks and
initial unemployment claims. Although job creation has been steady according
to the BLS payroll data, unemployment claims have been declining and are near
reaching the cycle lows seen in the late 1990's and mid 2000's. Staffing
stocks were firm in this time period. The claims data is inverted to show
strong (weak) staffing stock prices occurring with a drop (rise) in
One might draw the conclusion that labor stocks could trade with a firm tone
if unemployment claims range in the 300,000 to 350,000 area for a prolong
period and in a similar fashion to the 2004 to 2007 period.
Although the expansion in the labor market looks mature, the mid 2000 period
could service as an analog. Staffing stocks rose, while claims ranged at
relatively low levels. Let's take a look at staffing stocks and try to come
up with a potential winner or two.
Diving into the stocks:
There are a number of stocks in the staffing company universe. KFY has the
most positive trend in earnings estimates revisions. MAN is a distance
second, while the other names have seen no activity. The up move in estimates
for KFY seemed to come in the wake of its profit results.
The company was able to produce a 10% positive earnings per share surprise in
the quarter ending July. Market share gains and industry positioning are two
factors at work in upward guidance. There has not been a material enough
change in economic conditions to spark mass revisions, and the majority of the
staffing companies have not provided great insight into operations. This has
kept analysts from changing their earnings estimates.
The growth outlook:
Looking at outlook for sales growth, On Assignment (NYSE:ASGN-Free Report) is
expected to post the strongest results followed by KFRC. On earnings, TBI and
KFRC are projected to see the most vibrant EPS growth.
The valuation picture:
Three measures of valuation were examined for each stock. The table following
displays the 12 month forward PE ratio, PEG ratio, and Price to Sales ratio.
Generally, valuations are on the rich side of the historical norm. Let's
look at each measure:
The median 12 month forward PE for the group is 19.45 against a long term
median of 17.99. The average premium is 6.4%. KFY is trading at the biggest
discount to average and the peer group followed by KFRC.
The median 12 month PEG ratio for the group is 1.63 against a long term median
value of 1.11. The average premium for the group is 47.8%. The sector seems
expensive based on its PEG ratio. All the companies with the exception of KFY
are trading at a premium PEG ratio to their median. This makes KFY a clear
stand out. For review, the PEG ratio is the ratio of a stock's price to
earnings ratio to its earnings per share growth rate. Stocks are seen as
"cheap" ("expensive") if they are trading with a PE ratio below (above) the
It should be noted that TBI has posted the strongest premium, but this may be
a function of its outlook for strong EPS growth relative to trend. Likewise,
KFRC is expected to see high EPS growth in the coming fiscal year and has an
elevated PEG ratio despite a relatively tame 12 month forward PE ratio.
On a price to sales basis, all the stocks but KFRC and CTP are trading at a
premium to their median ratio. KFRC has a slight discount, while CTP is
trading in line with the median. KFY is trading at only at a marginal
premium. ASGN and TBI are trading at the largest premiums.
If a position is assigned to each stock based on its valuation measure
relative to its peers and the positions are averaged, KFY appears to be the
cheapest firm followed by KFRC. KFY had the lowest forward PE, lowest PEG
ratio and third lowest price to sales ratio. ASGN had the worst valuation
Combining valuation with earnings:
KFY seems to be the most attractive stock based on valuation and the upward
revision to earnings. Furthermore, it is expected to grow its EPS at nearly
19% in the coming fiscal year.
MAN has more attractive valuation and seems to have stronger upward momentum
to earnings estimate revisions (it's a Zacks Rank #2), but its outlook for
earnings growth is less attractive at 11.2%.
KFRC, Zacks Rank #3, is not seeing an attractive trend in earnings estimate
revisions, but the stocks is attractively valued and is expected to see sharp
EPS growth of 24.4% in the coming year.
Based on the Zacks Rank and valuation, KFY looks like the top pick in the
staffing group. If you think the Fed will be successful in generating job
growth, and the cycle of economic growth has further to expand, staffing names
could do a good job for your portfolio.
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of
the Day pick for free.
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