The U.S. staffing industry is benefiting from promising developments in the broader economy. The labor market has been witnessing record low unemployment levels and strong job additions since the beginning of the year.
While the economy continues to create new jobs despite the 18-year low jobless rate, a tight labor market is compelling companies to pay higher to attract and retain employees. Higher wage growth, a tightening labor market and a low unemployment rate indicate a bullish economy.
Trump administration’s business-friendly approach, including tax cuts and higher government spending act as major growth catalysts for the improvement of the overall economy, which in turn inspires optimism about growth of the staffing industry.
Per a report by statista, U.S. staffing industry has shown steady improvement over the past few years. From $119.4 billion revenues in 2013, the industry’s top line grew to $142.8 billion in 2017. For 2018, revenues are anticipated to be around $148.3 billion and exceed $150 billion in 2019.
Given these promising developments in the industry, let’s undertake a comparative analysis of two such stocks — Insperity, Inc. (NSP - Free Report) and ManpowerGroup Inc. (MAN - Free Report) . While Insperity has a market capitalization of $4.72 billion, ManpowerGroup’s market cap is $5.36 billion.
As both the stocks carry a Zacks Rank #3 (Hold), we are using certain other parameters to give investors a better insight. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
So far this year, shares of Insperity have gained 98.4%, significantly outperforming the 1.9% rise of the industry it belongs to. However, shares of ManpowerGroup have declined 37.9% in the same time frame.
Earnings growth along with stock price gains is often an indication of a company’s strong prospects.
Insperity’s current-quarter earnings are projected to grow 43.9% compared with 18.1% for ManpowerGroup. Looking at the full-year 2018 picture, Insperity’s earnings are projected to grow 43.7% while that of ManpowerGroup are expected to increase 21.9%. For 2019, Insperity’s earnings are expected to register 12.6% growth compared with 2% for ManpowerGroup.
Thus, Insperity has an edge over ManpowerGroup in terms of quarterly and yearly projected earnings growth.
Earnings Surprise History
The earnings surprise history of a stock helps investors have an idea of the stock’s performance in the previous quarters.
Insperity and ManpowerGroup have an impressive earning surprise history, with Insperity’s earnings surpassing the Zacks Consensus Estimate in each of the previous four quarters. ManpowerGroup’s earnings outpaced the consensus mark in three of the past four quarters.
However, Insperity has delivered a higher average positive earnings surprise of 18.2% compared with 2.9% for ManpowerGroup.
Net profit margin helps investors evaluate a company’s business model in terms of pricing policy, cost structure and operating efficiency, and shows how good it is at converting revenues into profits. Hence, a strong net profit margin is preferred by all classes of investors.
While Insperity has a TTM net margin of 3.1%, the same stands at 2.7% for ManpowerGroup. Though both the stocks compare unfavourably with the industry’s figure of 3.3%, Insperity has a higher TTM net margin than ManpowerGroup.
The Price to Earnings Ratio (P/E) metric is used to measure a company's value relative to its earnings. In general, a lower number or multiple is considered better than a higher one.
ManpowerGroup’s trailing 12-month price-to-earnings ratio of 9.5 is lower than Insperity’s 40.2. It also compares favorably with the industry’s ratio of 17.3.
The EV/EBITDA metric is used to compare two stocks within the same industry and offers a clearer picture of a company’s valuation because it includes debt. The ratio is often used in addition to the P/E ratio.
ManpowerGroup’s EV/EBITDA ratio of 6.5 not only compares favorably with Insperity’s 25.2 but also with the industry’s ratio of 8.5.
Considering both the valuation metrics, we observe that ManpowerGroup is not only cheaper than Insperity but also undervalued compared to the industry it belongs to.
Our comparative analysis shows that Insperity scores over ManpowerGroup in terms of price performance, quarterly and yearly projected earnings growth, earnings surprise history and net margin.
A faster share price rally on a year-to-date basis has led to a rich valuation for Insperity compared with ManpowerGroup.
Stocks to Consider
Some top-ranked stocks in the broader Business Services sector include WEX (WEX - Free Report) , ICF International (ICFI - Free Report) and Paychex (PAYX - Free Report) , all carrying a Zacks Rank #2 (Buy).
The long-term expected earnings per share growth rate for WEX, ICF International and Paychex is 15%, 10% and 8.4%, respectively.
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