Robert Half Or Kforce: Which Is A Better Staffing Stock?

The staffing industry acts as a bridge between employees and employers. Apart from a few internal factors (which vary from one company to another) that impact staffing services, external factors such as global presence, technological advancements, skilled professionals, government rules and regulations and economic conditions play a major role.

The U.S. economy currently looks strong on the back of improving employment scenario, robust manufacturing and non-manufacturing activities along with Trump administration’s business friendly approach. Notably, unemployment rate of 3.8% in May was the lowest in 18 years. Moreover, the U.S. economy added 223,000 jobs in May, significantly higher than 164,000 in April and 103,000 in March. Monthly job additions have averaged 191,000 in the past year. The latest job numbers bode well for staffing companies.

The buoyancy in the staffing space is further confirmed by its Zacks Industry Rank in the top 30% (78 out of the 250 plus groups). In such a scenario, it is not a bad idea to invest in staffing companies.

Given the promising developments in the staffing space, let’s indulge in a comparative analysis of two staffing stocks — Robert Half International Inc. (NYSE:RHI) and Kforce Inc. (NASDAQ:KFRC) . Both the stocks are part of the broader industry ’s rally of 28.5%, Kforce clearly scores over Robert Half.

One-Year Price Performance

Earnings Expectations

Earnings growth along with stock price gains is often an indication of a company’s strong prospects.

Kforce’s current-quarter earnings are projected to grow 45.5% compared with 32.8% for Robert Half. Looking at the full-year 2018 picture, Kforce’s earnings are projected to grow 40.1% while that of Robert Half are expected to increase 29.6%.

For 2019, Kforce’s earnings are expected to register 14.9% growth compared with 9.9% for Robert Half.

Thus, Kforce has an edge over Robert Half in terms of quarterly and yearly projected earnings growth.

Earnings Surprise History

The earnings surprise history of a stock helps investors have an idea of the stock’s performance in the previous quarters.

Robert Half and Kforce have a decent earning surprise history, with their earnings surpassing the Zacks Consensus Estimate in two of the previous four quarters.

However, Robert Half enjoys an edge over Kforce in terms of average positive earnings surprise. The reading for Robert Half is 2.4% compared with 0.8% for Kforce.

Net Margin

Net profit margin helps investors evaluate a company’s business model in terms of pricing policy, cost structure and operating efficiency, and shows how good it is at converting revenues into profits. Hence, a strong net profit margin is preferred by all classes of investors.

With a TTM net margin of 5.7%, Robert Half not only compares favorably with the industry’s figure of 3.3% but also has a lead over Kforce’s 2.7% TTM net margin.

Valuation

The Price to Earnings Ratio (P/E) metric is used to measure a company's value relative to its earnings. In general, a lower number or multiple is considered better than a higher one.

The trailing 12-month price-to-earnings multiple for Robert Half and Kforce is 25.2 and 21.2, respectively, while that of the industry is 19.5. Although both the companies are overvalued relative to the industry, Kforce has an edge with a lower P/E ratio.

The EV/EBITDA metric is used to compare two stocks within the same industry and offers a clearer picture of a company’s valuation because it includes debt. The ratio is often used in addition to the P/E ratio.

We observe that while Robert Half and Kforce have EV/EBITDA ratios of 13.3 and 12.4, respectively, the industry’s figure stands at 9.5. Although both the companies compare unfavorably with the industry, Kforce is better positioned with a lower EV/EBITDA value.

Though both the stocks look overvalued relative to the industry, Kforce is undervalued compared to Robert Half.

Bottom Line

Our comparative analysis shows that Kforce is better positioned than Robert Half in terms of price performance, valuation and quarterly and yearly projected earnings growth. Robert Half scores over Kforce in terms of net margin and earnings surprise history.

Other Stocks to Consider

Some other top-ranked stocks in the broader Business Services sector include Insperity, Inc. (NYSE:NSP) , Heidrick & Struggles International, Inc. (NASDAQ:HSII) and BG Staffing, Inc. (NYSE:BGSF) . While Insperity and Heidrick & Struggles sport a Zacks Rank #1, BG Staffing carries a Zacks Rank #2.

The long-term expected earnings per share growth rate for Insperity, Heidrick & Struggles and BG Staffing is 18%, 13.5% and 20%, respectively.

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