Trump administration’s business friendly moves have driven the staffing industry through 2018.
Government spending, especially in defense, and the tax reform have helped the economy gain traction, leading to robust manufacturing and non-manufacturing activities. Thin in turn supported additional hiring and wage gains, and aided growth of the staffing industry.
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 #53, which places it in the top 21% of more than 250 Zacks industries.
Given this backdrop, let’s do a comparative analysis of two staffing stocks — Insperity, Inc. (NSP - Free Report) and Heidrick & Struggles International, Inc. (HSII - Free Report) . Insperity has a market capitalization of $3.8 billion and Heidrick & Struggles’market cap is $579.2 million.
Zacks Rank & Style Score
Currently, the stocks sport a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.
However, with a VGM Score of A, Heidrick & Struggles enjoys an edge over Insperity in terms investment attractiveness, which has a VGM Score of C. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores.
Insperity has performed impressively on the bourse year to date compared with Heidrick & Struggles and the industry. While Insperity’s shares have rallied 60.7%, the same for Heidrick & Struggles gained 27.1%. The industry inched down 15.8% in the same time frame.
Earnings growth along with stock price gains is often an indication of a company’s strong prospects.
Insperity’s 2018 earnings are projected to grow 51.4% compared with 118.4% for Heidrick & Struggles. For 2019, Insperity’s expected earnings growth rate is 15% compared with Heidrick & Struggles’ 2.5%.
While Heidrick & Struggles has an edge in terms of 2018 expected earnings growth, Insperity has an edge when we look at 2019 expected earnings.
Earnings Estimate Revisions
The direction of estimate revisions serves as an important pointer when it comes to the price of a stock. Based on current-year and next-year earnings estimate revisions in the last 60 days, Heidrick & Struggles is better placed.
The Zacks Consensus Estimate for 2018 earnings increased 5.4% for Insperity and 18.4% for Heidrick & Struggles. For 2019, the consensus estimate moved up 7.8% for Insperity and 15.1 for Heidrick & Struggles.
Earnings Surprise History
The earnings surprise history of a stock provides investors an idea of a stock’s performance in the previous quarters.
Heidrick & Struggles and Insperity have an impressive trailing four quarter earnings surprise history. However, Heidrick & Struggles delivered higher average positive surprise of 28.4% compared with Insperity’s 18.4%.
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.
With a TTM net margin of 5.7%, Heidrick & Struggles has a lead over Insperity and the industry. Both Insperity and the industry have TTM net margins 3.7%.
EV/EBITDA is a commonly used multiple for the staffing industry. We observe that while Heidrick & Struggles and Insperity have trailing 12-month EV/EBITDA ratios of 4.64 and 16.91, respectively, the industry’s figure is at 6.77X.
So, Heidrick & Struggles looks cheap compared with Insperity and the industry.
Our comparative analysis shows that Heidrick & Struggles scores over Insperity in terms of 2018 earnings expectations, estimate revisions and earnings surprise history and net margin. Also, the company in undervalued compared with Insperity and the industry.
For Insperity, a faster share price rally led to higher valuation. The company’s earnings are expected to grow higher than Heidrick & Struggles in 2019.
Other Stocks to Consider
A few other top-ranked stocks in the broader Zacks Business Services sector are Interpublic (IPG - Free Report) , and Navigant Consulting , each carrying a Zacks Rank #2 (Buy). Long-term expected EPS (three to five years) growth rate for Interpublic and Navigant are 7.4% and 13.5%, respectively.
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