A gradually recovering economy encourages additional hiring and wage increase. Further, reduced expenses on the back of the booming work-from-home trend and the ongoing hybrid working model, coupled with higher technology adoption, are benefiting the Zacks
Staffing industry players. Insperity, Inc.( NSP Quick Quote NSP - Free Report) , Kforce, Inc. ( KFRC Quick Quote KFRC - Free Report) and Cross Country Healthcare, Inc. ( CCRN Quick Quote CCRN - 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
The Zacks Staffing industry comprises companies, which provide a wide range of services related to human resources, and workforce solutions and services. These include employment screening, recruitment (both for temporary staffing and long-term placements), retirement solutions, human capital management, payroll management, performance management, organizational planning, and financial and expense management. Some industry participants also provide staffing and risk consulting services, professional staffing services and solutions in the United States and internationally, and business solutions to improve the performance of small and medium-sized businesses as well as organizational consulting services worldwide
. What's Shaping the Future of the Staffing Industry?
Healthy Demand Environment :The industry has been witnessing growth in revenues and income over the past few years, which enabled most players to pay out stable dividends and repurchase shares. The industry also stands to benefit from the resumption of business activities, which were postponed or restricted by the coronavirus-triggered strict lockdowns across the globe. This led to additional hiring and wage increase. : The staffing industry stands to benefit from the renewal of business activities, following strict lockdowns across the globe. A solid economic recovery is evident from the fourth-quarter 2022 GDP, which, according to the "third" estimate released by the Bureau of Economic Analysis, increased at an annual rate of 2.6%. Economic Recovery
This improving U.S. economy further encourages additional hiring and wage increase. The U.S. economy added 236,000 jobs in March 2023. The unemployment rate in March 2023 came down to 3.5% from 3.6% in February. Average hourly earnings in March increased 9 cents to $33.18, registering a 4.2% increase from the year-ago period’s reported figure. Average weekly earnings in March increased 3.3% year over year to $1,141.39.
: Technology-based recruiting techniques like social media, mobile technology, artificial intelligence and Big Data have become popular. Video-conferencing tools, such as Google Meet, Zoom, Skype and Microsoft Teams, are being used to communicate with clients, conduct interviews and meetings, manage staff virtually plus handle remote training and remote surveillance. Also, technologies like the cloud and blockchain offer more storage and safety to HR data. These trends should keep the demand for staffing services in good shape. Increased Adoption of Technologies
The COVID-induced remote working model led to cost savings for many firms by bringing down their spending on real estate and reducing business travel. 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.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Staffing industry, which is housed within the broader Zacks
Business Services sector, currently carries a Zacks Industry Rank #167. This rank places it in the bottom 33% of more than 250 Zacks industries.
Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull near-term 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.
The sell-side analysts covering the companies in this industry have been decreasing their estimates. Over the past year, the industry’s consensus earnings estimate for the current year has decreased 25.8%.
Despite the cloudy prospects, we present a few stocks that investors can buy or retain given their sturdy potential. But before that let’s take a look at the industry’s recent stock market performance and its current valuation.
Industry's Price Performance
The Zacks Staffing industry has underperformed the broader Zacks Business Services sector and the Zacks S&P 500 composite over the past year.
The industry has declined 19.7% over this period compared with the 14.3% decline of the broader sector and 4.3% decline 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 5.13X compared with the S&P 500’s 12.62X and the sector’s 26.5X.
Over the past five years, the industry has traded as high as 13.27X, as low as 3.63X and at the median of 7.45X, as the charts below show.
3 Staffing Stocks to Keep a Close Eye on
We are presenting three stocks that are well-positioned to grow in the near term.
Insperity: This Zacks Rank #1 (Strong) Texas-based company provides human resources and business solutions to improve business performance for small and medium-sized businesses.
An increase in the average number of worksite employees paid per month has been aiding Insperity’s top line. Strength across sales, client retention and growth in the client base also act as other tailwinds. Consistency in rewarding shareholders through dividend payments and share repurchases boosts investor confidence and positively impacts earnings per share.
The Zacks Consensus Estimate for Insperity’s 2023 EPS has moved up 9.7% in the past 90 days. NSP’s stock has gained 31.2% over the past year.
Price & Consensus: NSP Kforce: This Zacks Rank #3 (Hold) Florida-based company provides professional staffing services and solutions in the United States and internationally.
Kforce’s technology staffing and solutions business has helped it stay competitive amid these challenging times. The rising demand for technology solutions has enabled Kforce to increase investments in the 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 Kforce’s 2023 EPS has improved 6.5% in the past 90 days. KFRC stock has declined 11.9% over the past year.
Price & Consensus: KFRC Cross Country Healthcare: This Zacks Rank #3 company provides innovative healthcare workforce solutions and staffing services. CCRN’s diverse client base includes clinical and non-clinical settings, servicing acute care hospitals, physician practice groups, outpatient and ambulatory-care centers, nursing facilities, both public schools and charter schools, rehabilitation and sports medicine clinics, government facilities and homecare. Cross Country Healthcare is able to place clinicians on travel and per diem assignments, local short-term contracts and permanent positions.
The Zacks Consensus Estimate for CCRN’s 2023 EPS has moved up 0.3% in the past 90 days. CCRN’s stock has gained 15.8% over the past year.
Price & Consensus: CCRN