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3 Stocks to Buy From the Promising Staffing Industry

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A solid transition from a candidate-driven market to a job-oriented market has been noticed of late. Staffing companies are also finding new opportunities with the digitization of workforce. The remote working model is leading to cost savings for industry players by bringing down their spending on real estate and reduction of business travel. These factors bode well for companies in the Zacks Staffing industry.

Korn Ferry (KFY - Free Report) , Kforce, Inc. (KFRC - Free Report) and Heidrick & Struggles International, Inc. (HSII - Free Report) are some stocks that are likely to gain from the abovementioned industry trends. However, job loss concerns amid market uncertainties persist.

Industry Description

Companies in the Zacks Staffing industry offer a wide range of services related to human resources and workforce solutions. These include employment screening, recruitment (both for temporary staffing and long-term placements), retirement solutions, human capital management, payroll management, performance management, organizational planning, financial and expense management.

What’s Shaping the Future of Staffing Industry?

Healthy Demand Environment:The industry has been witnessing growth in revenues and income over the past few years, which has enabled most players to pay out stable dividends and repurchase shares. The industry also stands to benefit from the gradual resumption of business activities, which were postponed or restricted due to the coronavirus-induced strict lockdowns across the globe. This has led to additional hiring and wage increase.

Shift in Recruitment Patterns: A solid transition has been noticed from a candidate-driven market (where applicants would apply for or choose the roles based on their respective educational background and skills) to a job-oriented market (where applicants are required to adapt themselves with the available open positions).

Coronavirus-induced lockdowns have resulted in unproductive units in several industries, prompting companies (especially in the aviation, travel & tourism, hospitality, manufacturing, automotive, media and entertainment sectors) to reduce their temporary staff. However, there has been a spike in hiring for essential services like e-commerce, logistics (package/freight delivery, hyper-local delivery), healthcare and information technology.

Additionally, a number of temporary employees are being hired across retail, co-operative and agricultural operations, including the distribution of food, milk, groceries, vegetables, under different job roles ranging from delivery agents, supervisors, drivers, customer care.  Other essential services involve workers engaged in manufacturing and distribution of PPEs, and employees in banks, ATMs, telecom and Internet services.

Increased Adoption of Technologies: The industry has witnessed a shift in its operating model with an increase in the number of remote workers. Recruiters are opting for online communication tools to conduct interviews. As a result, technology-based recruiting techniques like social media, mobile technology, artificial intelligence and Big Data are in demand. Also, technologies like cloud and blockchain offer more storage and safety to HR data. These trends should keep demand for staffing services in good shape.Video conferencing tools such as Google Meet, Zoom, Skype and Microsoft Teams are being used to communicate with clients, conduct interviews and meetings, manage staffs virtually, remote training and remote surveillance.

Staffing companies are also finding new opportunities with the digitization of the workforce and demand for software-as-a-service solutions to meet new challenges in the current scenario.

Remote working model is leading to cost savings for many firms by bringing down their spending on real estate and reduction of business travel.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Staffing industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #99. This rank places it in the top 39% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates strong near-term growth prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Before we present a few stocks that investors can buy given their growth prospects, let’s take a look at the industry’s recent stock market performance and current valuation.

Industry Outperforms Sector and S&P 500

The Zacks Staffing industry has outperformed the broader Zacks Business Services sector as well as the Zacks S&P 500 composite over the past year.

The industry has gained 44.7% over this period compared with 5.2% rally of the broader sector and 30.5% increase of the Zacks S&P 500 composite.

One-Year Price Performance

Industry’s Current Valuation

On the basis of EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization), which is commonly used for valuing staffing stocks because of their high debt levels, the industry is currently trading at 8.42X compared with the S&P 500’s 17.24X and the sector’s 15.73X.

Over the past five years, the industry has traded as high as 9.84X, as low as 3.35X and at the median of 7.42X, as the charts below show.



3 Staffing Stocks to Keep a Close Eye On

We are presenting three stocks that currently carry a Zacks Rank #2 (Buy) and are well positioned to grow in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Korn Ferry: This Californa-based company provides organizational consulting services worldwide.

Korn Ferry continues to benefit from its business model, which is highly diversified in terms of geography, segment and industry. Revenue growth, operational efficiencies and reduction in expenses have been aiding the bottom line. The company’s solid cash position allows it to pursue strategic acquisitions, invest in growth initiatives and return cash through regular quarterly dividend payment and share repurchases.

The Zacks Consensus Estimate for current-year earnings has improved 71.6% in the past 90 days. The stock has gained 67.1% over the past year.

Price & Consensus: KFY

Kforce Inc.: This Florida-based company provides professional staffing services and solutions in the United States and internationally.

The company’s technology staffing and solutions business has helped it stay competitive amid these challenging times. Rising demand for technology solutions has enabled Kforce to increase investments in cloud-based, technology-enabled operating model. This is expected to supplement the company’s growth amid coronavirus-induced dependency on technology. Apart from this, it is anticipated to benefit from modifications in its business model and reduction of operating costs.

The Zacks Consensus Estimate for current-year earnings has improved 8.8% in the past 90 days. The stock has gained 62.3% over the past year.

Price & Consensus: KFRC

Heidrick & Struggles International:This Illinois-based company provides executive search and consulting services to businesses and business leaders worldwide.

Though the pandemic impacts weigh on the company’s top line, the bottom line is gaining from operational efficiencies and focused cost initiatives. Consistency in rewarding shareholders through dividend payments boosts investor confidence and positively impact earnings.

The Zacks Consensus Estimate for current-year earnings has improved 18.9% in the past 90 days. The stock has gained 56.9% over the past year.

Price & Consensus: HSII

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In-Depth Zacks Research for the Tickers Above

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KornFerry International (KFY) - free report >>

Kforce, Inc. (KFRC) - free report >>

Heidrick & Struggles International, Inc. (HSII) - free report >>