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Insperity (NSP) Benefits From Strong Client Retention Rate

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Insperity, Inc. (NSP - Free Report) stock has rallied a massive 113.4% in the past year, significantly outperforming the 23.7% gain of the industry it belongs to.


The company looks strong on the back of increased client retention, growth in worksite employees and a diversified ancillary product portfolio. A booming PEO industry is another tailwind.

In the first quarter of 2018, Insperity posted impressive results with earnings and revenues surpassing the Zacks Consensus Estimate and increasing on a year-over-year basis. While strength across new sales, client retention and pricing boosted the top line, the bottom line was driven by growth in worksite employee and gross profit.

Adjusted earnings of $1.41 per share surpassed the consensus mark by 27 cents and increased a massive 53% year over year. Revenues came in at $1.04 billion exceeding the consensus mark by $26 million and improved 15% year over year.

Also, the company’s earnings surprise history has been impressive. It surpassed estimates in each of the trailing four quarters, with an average positive surprise of 20%. For the second quarter, the consensus estimate moved up 17.3% over the past 30 days.

Optimistic PEO Industry

Insperity is an integrated human resources and business solutions provider. The company primarily offers professional employer organization (“PEO”) services, which include Workforce Optimization and Workforce Synchronization solutions.

Workforce synchronization continues to gain traction with mid-market clients and this bodes well for the company. Furthermore, the company is likely to witness robust growth driven by the increase in tenured business process automations (BPAs). Increasing demand for its offerings propelled by the Affordable Care Act (“ACA”) and some other similar bills are key driving factors, which will allow the company to expand its client base.

Strong Client Retention Rates

Insperity’s dedication toward improving itsclient retention rates looks impressive. This has resulted in the creation of a sizable recurring revenue base. The company has especially designed solutions catering to the requirement of each of its client segments (small, emerging gross and mid-market clients).

This, in turn, has enabled it to adopt a targeted strategy for each segment to minimize client attrition. In 2017, client attrition rate was 15% compared with 14% in 2016. This has boosted its client retention rate consistently over the past few quarters. In 2017 and 2016, the retention rates were 85% and 86%, respectively, better than its long-term average of 83%. The retention rate in 2015 was 84%.

Zacks Rank & Other Stocks to Consider

Insperity currently has a Zacks Rank #1 (Strong Buy). Some other top-ranked stocks in the broader Business Services sector include Robert Half International (RHI - Free Report) , Kforce Inc. (KFRC - Free Report) and Korn/Ferry International (KFY - Free Report) . All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sales for Robert Half, Kforce and Korn/Ferry are estimated to rise 9.1%, 5.1% and 11.9%, respectively, for the current quarter.

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