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.
Per a report by statista, U.S. staffing industry has shown steady improvement over the past few years. From $114.1 billion revenues in 2012, the industry’s top line grew to $151.8 billion in 2019. However, revenues are anticipated to decline to 119.4 billion (indicating year-over-year decrease of 21%) in 2020 owing to the coronavirus outbreak. For 2021, the industry is projected to register $136.4 billion in revenues.
Here are the industry’s three major themes:
- Coronavirus has dealt a blow to the global staffing industry in recent times as lockdowns resulted in unproductive units in several industries. This has been prompting companies (especially in the insurance, travel, retail and hospitality sectors) to reduce their temporary staff to put a check on operating costs and expenses amid uncertainties created by the pandemic. As a preventive measure for temporary workers’ job security, companies are being asked to halt wage hikes for the next 12 months and slash bonuses.
- Technology will continue to remain essential and companies adopting newer types of businesses are expected to recover soon. Technology-based recruiting techniques like social media, mobile technology, artificial intelligence and big data are in demand amid lockdowns. Employees continue to struggle to strike a balance between home and work life in the work-from-home scenario amid lockdowns.
- An uptick is happening in back-office businesses such as shared services, fintech business, and e-commerce or online business (new models). Even, automotive back-office centers are seeing an upside.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Staffing industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #159. This rank places it in the bottom 37% 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 weak 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.
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 54.6%.
Despite the bleak prospects, we present a few stocks that investors can retain in their portfolio. But before that, let’s take a look at the industry’s recent stock market performance and current valuation
Industry Underperforms Sector and S&P 500
The Zacks Staffing industry has underperformed the broader Zacks Business Services sector as well as the Zacks S&P 500 composite over the past year.
The industry has declined 30.1% over this period compared with 2.7% decline of the broader sector. Meanwhile, the Zacks S&P 500 composite has risen 5.2% in the said time frame.
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 4.83X compared with the S&P 500’s 11.24X and the sector’s 12X.
Over the past five years, the industry has traded as high as 9.76X, as low as 3.73X and at the median of 7.51X, as the charts below show.
Coronavirus-led lockdowns have led to unproductive units in several industries, thereby prompting companies to cut jobs to curtail expenses. Technology-based recruiting techniques like social media, mobile technology, artificial intelligence and big data are more in demand amid lockdowns. However, there is an upside in back-office businesses such as shared services, fintech business, and e-commerce or online business.
We are presenting three stocks from the industry, which we believe investors should retain as these carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let’s take a look at the stocks.
Robert Half International Inc. (RHI - Free Report) : This California-based firm provides staffing and risk consulting services in North America, South America, Europe, Asia, and Australia. The Zacks Consensus Estimate for current-year EPS has remained unchanged in the past 60 days.
Price and Consensus: RHI
Staffing 360 Solutions, Inc. (STAF - Free Report) : This New York-based staffing company is engaged in the acquisition of staffing companies in the United States and the United Kingdom. The Zacks Consensus Estimate for current-year EPS has improved 5.3% in the past 60 days.
Price and Consensus: STAF
Resources Connection, Inc. (RGP - Free Report) : This California-based company provides consulting services to business customers under the Resources Global Professionals name in North America, Europe, and the Asia Pacific. The Zacks Consensus Estimate for current-year EPS has improved 0.6% in the past 60 days.
Price and Consensus: RGP