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We reaffirm our long-term Neutral recommendation on ManpowerGroup (MAN - Analyst Report), the global leader in the employment services industry with a target price of $54.00, following the company’s better-than-expected fourth-quarter 2012 results, offset by soft projection. However, the company retains a Zacks Rank #2 (Buy) status that well defines its long-term positive earnings surprise history.

Why the Reiteration?

Manpower posted stronger-than-anticipated fourth-quarter 2012 results on the back of effective cost management and stabilized gross margin. The quarterly earnings of 91 cents a share beat the Zacks Consensus Estimate of 77 cents. The company’s earnings have consistently beaten the Zacks Consensus Estimate in the last 17 quarters. However, it fell 7.1% from the prior-year quarter as the current sluggish macroeconomic environment resulted in soft demand for recruitment services, particularly in Europe, and weighed upon its results.

Total revenue dropped 5.1% to $5,202.6 million during the quarter but came ahead of the Zacks Consensus Estimate of $5,140 million.

Manpower is now contemplating on exiting lower margin business and venturing into high margin business. The company is also focusing on controlling expenses. On the other hand, the ManpowerGroup Solutions business sustained its growth momentum. The demand for the counter-cyclical outplacement services portrayed signs of steadiness, which increased 16% during the quarter. Canada, U.K., China and India, all contributed to the company’s growth story. Manpower hinted at a mild recovery in the markets in 2013.

We believe that Manpower’s brand value, comprehensive range of services and a strong global network provide a competitive advantage and reinforce its dominant position in the market. However, we remain concerned about the company’s soft top and bottom lines projection for the first quarter of 2013, and the macroeconomic conditions, particularly in Europe.

Management anticipates first-quarter 2013 total revenue to decline between 6% and 8% from the prior-year quarter. Manpower now expects first-quarter earnings in the range of 40 cents to 48 cents a share, reflecting a year-over-year decline of 20% to 4%, respectively. The current Zacks Consensus Estimate for the quarter is 44 cents.

Other Stocks to Consider

Other stocks in the business services sector that you could consider are Korn/Ferry International (KFY - Snapshot Report), holding a Zacks Rank #1 (Strong Buy), along with On Assignment Inc. (ASGN - Snapshot Report) and Robert Half International Inc. (RHI - Analyst Report), both of which carry a Zacks Rank #2 (Buy). These stocks are expected to continue with their upbeat performances and sustain their positive earnings surprise trend.

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