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Can ManpowerGroup Ride Higher on Trump's Staffing Policies?

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The hiring pace in the U.S is anticipated to remain positive in second-quarter 2017 with 22% of employers planning to increase their staff intake between April and June.

Since the election of President Trump, the U.S Labor Market has seen a boost. Employment increased by 2,35,000 in Feb, followed by a 2,38,000 rise in Jan, which was above the previously estimated rate. In addition, the unemployment rate fell to 4.7% and wages grew 2.8% since February 2016.

Enjoying the fruits of a resurgent job market, low inflationary pressures and cheaper oil bills, consumer confidence strongly held its fort. The Conference Board Consumer Confidence Index improved to 114.8 in February from 111.6 in January, signifying optimism about the U.S. economy.

According to a survey conducted in Feb 2017, economists project an average monthly increase of 171,000 jobs, on a yearly basis. Over the next 10 years, Trump has set a goal of adding 25 million jobs, which would require additions of 208,000 a month. With the job market nearing its full capacity, this could spur faster wage growth. On the downside, payroll gains are forecasted to be sluggish, owing to factors including employers’ difficulty filling positions and tepid growth in the working-age population.  

Industry Performance

The Zacks categorized Staffing Firms industry has remarkably outperformed the S&P 500 since the appointment of Trump. Since Nov 8, 2016, the staffing industry has seen a rise of 11.9% while the S&P 500 has gained 7.1%. This indicates that Trump’s policies have led to an increase in demand for staffing services.

Per a report by ManpowerGroup Inc. (MAN - Free Report) Employment Outlook Survey, employers in U.S. regions and industry sectors expect headcount to grow in the second quarter, despite political uncertainties. Based on the report, out of 11,000 U.S. employers surveyed, 73% are expected to modify their hiring plans whereas 3% are expected to reduce their workforce. For the second quarter, employment in the U.S. is expected to grow 17%.

Employment rate across 13 industries are expected to grow in the second quarter. Some of the industries that are expected to report the strongest hiring intentions include Leisure & Hospitality (+28%), Wholesale & Retail Trade (+21%), Transportation & Utilities (+20%) and Professional & Business Services (+19%).

Impact on ManpowerGroup

As more hiring is in the cards, staffing companies such as ManpowerGroup is likely to benefit from the new policies. The company also expects to experience income growth across all its segments.  

Since the elections, ManpowerGroup has outperformed the Zacks categorized Staffing industry with an average return of 16.7% compared with 11.9% gain for the latter. Over the past 60 days, the company’s earnings estimates have been encouraging, with five upward revisions and two downward revisions for the full year. The current-year estimates for the company have inched up 1.2% following the estimate revisions.

ManpowerGroup currently has a Zacks VGM Score of ‘A’, putting it into the top 20% of all stocks we cover. The company has a Value Score of ‘A’ that indicates it would be a compelling pick for value investors. The financial health and growth prospects of the company demonstrate its potential to outperform the market. It currently has a Growth Score of ‘B’. Recent price changes and earnings estimate revisions indicate that this would be a good stock for momentum investors as it has a Momentum Score of ‘B’.

In addition, despite continued weakness and uneven global market conditions, ManpowerGroup reported better-than-expected earnings in fourth-quarter 2016, which also marked its 29th consecutive quarter of earnings beat. The company reported adjusted earnings per share of $1.80, beating the Zacks Consensus Estimate of $1.70. GAAP earnings improved to $127.4 million or $1.87 per share from $123.9 million or $1.66 per share in the year-ago quarter on strong operational performance and better-than-expected expense leverage. The company remains optimistic about its future performance on the back of its strategic initiatives. It expects first-quarter 2017 earnings per share in the range of $1.06 to $1.14.

Bottom Line

On such positive underlying metrics, we can conclusively say that ManpowerGroup is poised to see brighter days as the year progresses. With the increase in demand for staffing services, the company is expected to see a boost in revenues in the coming quarter.

ManpowerGroup currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the industry include Kforce Inc. (KFRC - Free Report) , Randstad Holding NV (RANJY - Free Report) and Heidrick & Struggles International, Inc. (HSII - Free Report) . Kforce and Randstad carry a Zacks Rank #2 (Buy), while Heidrick & Struggles sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kforce is currently trading at a forward P/E of 14.7%.

Randstad has a long-term earnings growth expectation of 8% and is currently trading at a forward P/E of 13.0x.

Heidrick & Struggles has a long-term earnings growth expectation of 11.5% and is currently trading at a forward P/E of 21.8x.

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