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KFY vs. KFRC: Which Staffing Firm is Better Positioned?

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The staffing industry is currently benefiting from a strong economy, leading to robust manufacturing and non-manufacturing activities, and higher corporate spending post the tax reform. The labor market has been witnessing record low unemployment levels and strong job additions since the beginning of 2018.

Per a new industry forecast by Staffing Industry Analysts, the U.S. staffing market is anticipated to go up by 4% in 2018 from 3% in 2017.

The Zacks Staffing Industry  is a group within the broader Zacks Business Services Sector. The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid growth prospects in the near term. It carries a Zacks Industry Rank #62, which places it in the top 24% of more than 250 Zacks industries.

Given this backdrop, let’s do a comparative analysis of two staffing stocks — Korn/Ferry International (KFY - Free Report) and Kforce Inc. (KFRC - Free Report) . Korn/Ferry has a market capitalization of $2.6 billion and Kforce’s market cap is $804.4 million.

As the stocks carry a Zacks Rank #3 (Hold), we are using other parameters to provide investors a better insight.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price Performance

Shares of Kforce and Korn/Ferry have gained 21.5% and 7.5%, respectively, in the past year. Though the stocks have gained against the industry’s decline of 7.3%, Kforce clearly scores over Korn/Ferry.

 

 

Earnings Guidance

Earnings growth along with stock price gains is often an indication of a company’s strong prospects.

Kforce’s current quarter earnings are projected to grow 26.7% year over year while that of Korn/Ferry are expected to increase 19.4%.  Looking at the full year picture, Kforce’s earnings are projected to grow 40.8% while that of Korn/Ferry are expected to increase 21.3%.  Thus, Kforce has an edge over Korn/Ferryin terms of quarterly and yearly earnings growth expectations.

Estimate Revisions

The direction of estimate revisions serves as an important pointer when it comes to the price of a stock.

Based on current-quarter and current-year earnings estimate revisions in the last 60 days, Korn/Ferry is better placed. The Zacks Consensus Estimate for Korn/Ferry’s current-quarter and current-year earnings was unchanged at 80 cents and $3.30, respectively. For Kforce, current-quarter and current-year estimates declined 3.4% and 1.8%, respectively.

Earnings Surprise History

The earnings surprise history of a stock helps investors an idea of the stock’s performance in the previous quarters.

Kforce and Korn/Ferry have an impressive trailing four quarter earnings surprise history. Korn/Ferry delivered higher average positive surprise of 11.5% compared with Kforce’s 1.5%.

Net Margin

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.

Korn/Ferry’s TTM net margin of 8.9% is above Kforce’s figure of 3.8% and the industry’s tally of 3.7%.

Valuation

EV/EBITDA is a commonly used multiple for the staffing industry. We observe that while Korn/Ferry and Kforce have trailing 12-month EV/EBITDA ratios of 9.72 and 9.66, respectively, the industry’s figure is at 7.74X. Although the companies compare unfavorably with the industry, Kforce has a lower EV/EBITDA value than Korn/Ferry.

 

 

So, Kforce looks cheap compared with Korn/Ferry and the industry.

Bottom Line

Our comparative analysis shows that Kforce scores over Korn/Ferry in terms of price performance and quarterly and yearly expected earnings growth. Despite a faster share price rally in the past year, Kforce is cheaper than Korn/Ferry. Korn/Ferry has an edge in terms of estimate revisions, earnings surprise history and net margin.

Stocks to Consider

A few better-ranked stocks in the broader Business Services sector include Paychex, Inc (PAYX - Free Report) and WEX Inc (WEX - Free Report) , each carrying a Zacks Rank #2 (Buy).

Long-term expected EPS (three to five years) growth rates for Paychex and WEX are 8.5% and 15%, respectively.

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WEX Inc. (WEX) - free report >>

Korn/Ferry International (KFY) - free report >>

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

Paychex, Inc. (PAYX) - free report >>

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