|
Look at the staffing industry's stocks, however, and the boom times aren't so apparent. For 1999, a Morningstar index that tracks 21 companies in the permanent and temporary employment field posted a 6.8% decline. So far this year, the same basket of stocks has done marginally better -- a 0.7% return that has outpaced the 0.8% downturn in the S&P 500. But that's a tepid performance, considering that Robert Half International, a major player in the group, has risen 114% in 2000. Most other players in the business are still trying to find their game. Temp king Manpower Inc., whose stock jumped 50% last year thanks to growth overseas, has virtually run in place, down 0.3% this year. Interim Services, up 5.9% last year, clued the Street in to an earnings disappointment in the first quarter and as a result has dropped 18.7% year-to-date. By the end of April, the group had sunk to an average price-to-earnings multiple of 14, less than half the 30 times estimated 2000 earnings the S&P 500 commanded at the time. These weak stocks reflect a number of negatives that have surfaced over the past year or two. First were worries in early 1999 that a recession might be on its way. Next, dot-com e-cruiters drowned out the staffing industry's buzz with a series of IPOs. New companies such as Hotjobs.com and Careerbuilder produced jaw-dropping gains -- enough to scare some investors into believing that traditional recruiters might be in jeopardy. Then the industry's headline mergers -- a $1.55 billion deal for Switzerland's Adecco to purchase Olsten and a $735 million union between Interim Services and Norrell -- gave investors pause. On top of that, the tight job market that should have been a plus for staffing firms has instead hurt them: Recruitment firms and temp agencies have found themselves just as strapped for labor and candidates as their clients are. CONSOLIDATION. Indications are, though, that the industry may now be worth scouting for good stock picks. CS First Boston analyst Adam Waldo expects revenue growth on the order of 10% this year, small compared with the 25% or so the staffing and employment group boasted five years ago, but a substantial figure nonetheless. Recruitment and temp companies with a strong European base are likely to enjoy a growth spurt now that the Continent's tightly regulated markets are opening up. "Europe is three to four years behind the U.S. in terms of its use of high-skilled temporary workers," says Gerard Klauer Mattison analyst Jeffrey Silber. "Now that governments are looking more favorably at companies' use of temporary staffs, Europe is probably where the growth is going to be." At home, meanwhile, industry consolidation is likely to resume at a feverish pace in the near future. "There are 55 names we follow in the business, and by my count that's 40 too many," says Legg Mason analyst Matthew Roswell. "Everyone is talking to everyone else, and I'm expecting consolidation to heat up in the second half of the year," says CS First Boston's Waldo. The threat from dot-com upstarts seems to have passed like a bad dream, meanwhile. As Internet shares deflated this year, TMP Worldwide's sites -- Monster.com, Hotjobs.com, and Careerbuilder -- have followed Web peers downward and now trade at 40% to 80% off their 52-week highs. The old-line staffing stalwarts, meanwhile, have been busy getting onto the Web. "Ironically, some of the biggest clients of e-cruiters are the traditional staffing companies themselves," says Gerard Klauer's Silber. "They're able to harness the real-time capabilities of the e-cruiters, and yet provide value through interviewing and screening resumes, things technology still can't replace." Says CS First Boston's Waldo: "In this business, it's obvious that clicks and mortar wins." If you're looking for a company that's considered one of the best-managed in the staffing business, you might consider Robert Half International. One problem, though: Robert Half, the largest temp and permanent employment firm in the bustling financial- and accounting-services sector, has been a hot stock after posting a 30% jump in first-quarter sales. That leaves the stock at a lofty p-e of 38.6 compared with mid-teen p-e's for most of its peers. Legg Mason's Roswell says the company looks like a good long-term bet. So he's looking to buy on weakness -- say if the stock, which closed on May 19 at $59.06, drops further into the $50s. Expensive or not, 14 of 16 analysts who follow the stock rate it a "strong buy" or "buy," according to Zacks Investment Research, and Wall Street thinks Robert Half's earnings will grow an average of 19.7% annually over the next five years. Gerard Klauer's Silber says the stock, which he rates as fully valued at the moment, could hit $72 a share in the next 18 months. EUROPE'S BOOM. One of the best plays on Europe's coming temp boom is Manpower. The company, which has offices in 52 countries, derives 62% of its revenues from operations in Europe and 75% from overseas business. Manpower, in fact, can thank a strong showing in outposts such as France and Japan for its good numbers in the first quarter, when the company posted a 24% increase in earnings year-over-year and beat Street estimates. A January, 2000, acquisition of British firm Elan will strengthen Manpower's presence across the Atlantic. S&P analyst Sandy Katzler expects that a good showing overseas will help the company log 15% to 20% revenue growth this year and next. And while Manpower has run up 15% in the last three months, the stock is still no better than even with its close in 1999. Of the 15 analysts who follow the stock, 13 rate it a strong buy or buy, and Wall Street consensus estimates place Manpower's five-year average-annual-growth rate at 14.8% according to Zacks Investment Research. CS First Boston's Waldo thinks that Manpower shares, which closed on May 19 at $37.75, could hit $50 in the next 12 months. Interim Services hasn't made many friends on the Street lately, particularly after warning that its first quarter would be a disappointment. That's no reason to write the company off, though: Interim has recently been squeezed by a slump in demand for information technology professionals, a business that kicks in around 25% of the company's revenues. Calls for IT temps and staff tailed off earlier than many expected as Y2K problems were solved. But Gerard Klauer's Silber expects the technology portion of Interim's business to bounce back, especially as clients focus on Internet strategies. INTERIM PLANS. Interim has launched plans to recast itself as a human-resources consulting firm as well as a temp and staffing firm. Legg Mason's Roswell says that should start to boost Interim's operating margins from around 5% to the high single digits by yearend. Zacks reports that 12 of the 15 analysts that track Interim rate it a strong buy or buy. Currently, the Street estimates that Interim's earnings will grow an average of 21% annually over the next five years. Silber says Interim's shares, which closed at $20.13 on May 19, could hit $27 over the next 12 months, a price he calls "conservative." The closest thing to a mutual-fund surrogate for the employment industry is Fidelity's Select Business Services & Outsourcing (FBSOX), a relatively new portfolio that posted a 29.4% total return in 1999, but has declined 11.4% so far this year. The fund has held stakes in Manpower and TMP Worldwide in the past, according to the most recent Morningstar data -- which could help explain its slippage in 2000. Anderson teaches journalism at the City University of New York. His Sector Scope column appears every other Monday on BW Online |
