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Aggressive Growth

Barrett Business Services, Inc. (BBSI - Snapshot Report) has an impressive record of outperforming quarterly earnings expectations, which it continued in its second quarter report with a surprise of more than 20%. Shares for this provider of business management solutions are up 81.8% over the past year.

What’s even more encouraging for this Zacks #1 Rank (Strong Buy) is the expected earnings growth rate of 22% over the next 5 years, which is significantly higher than the 11.6% for the industry.

Solid Q2 Earnings Beat

On July 24, 2012, Barrett Business Services reported second quarter earnings per share (EPS) of 53 cents, up 55.9% from the year-ago quarter and ahead of the Zacks Consensus Estimate by 20.45%.

Revenues grew 25.6% year over year to $95.5 million, driven by strong growth in the Professional employer service fees segment. Segment growth came from an increasing client count and strong same-store sales. However, this was partially offset by flat Staffing Services segment revenue.

Management acknowledged the solid client base and asserted that client retention was strong.

Upbeat Third Quarter Guidance

Barrett Business Services provided an encouraging third quarter 2012 guidance, expecting EPS between 70 and 73 cents. This represents a 32.4% increase from the year-ago earnings. Excluding a one-time tax benefit in the year-ago quarter, the EPS increase would be 70.2%.

Earnings Estimates Revised Higher

Over the last 60 days, the Zacks Consensus Estimate for 2012 is up 12.9% to $1.49, while the Zacks Consensus Estimate for 2013 increased 14.6% to $1.81.

The estimate for fiscal 2012 represents an increase of 67.4% from the 89 cents reported in fiscal 2011, while the estimate for fiscal 2013 represents a year-over-year increase of 21.1%.

Valuation is Attractive

Considering the company’s growth prospects, its valuation looks attractive on a P/E basis. Barrett Business Services is currently trading at a P/E of 22.5X, which is a discount of 14.1% from the peer group average of 26.2X. In addition, the stock is trading at a forward P/S of 0.53, compared with the peer group’s P/S of 0.61.

Chart Represents Growth Potential

The 12-month EPS chart clearly shows that both share prices and earnings have trended higher over the past few years. The current momentum appears to be driven by the growing client base and price increases supported by estimate growth trends.

Currently, the price is in the range of $26.00–$27.00. The consensus estimates for 2012 and 2013 are moving upward. The estimate revision trend indicates a steep upward movement through fiscal 2015. As illustrated in the chart below, share prices should increase at a much higher rate than the estimate revision trend.

Vancouver, Washington-based Barrett Business Services has roughly 47 years of experience in providing business management solutions. The company offers staffing and professional employer organization services, which help employers to manage employment-related issues efficiently, while reducing operational costs to a great extent. The host of service offerings includes payroll processing, employee benefits and administration, workers’ compensation coverage, effective risk management and workplace safety programs, and human resource administration.


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