Temp Hiring Firms Are Contrarian Play: Greenberg


Just because somebody upgrades a company doesn't necessarily mean you should act, but Morgan Stanley's upgrade of Robert Half today grabbed my attention for a simple reason: Temporary help seems to be where it's at.

Government job data doesn't show a lot of fulltime job growth but it is showing a steady trend of temporary hiring—and has since that number turned positive in October.

And it would appear, as companies cut costs, the shift to temporary workers is becoming more permanent.

Yet you wouldn't know it looking at the stocks of temporary work companies. They're off big from their April highs:

  • Manpower down around 34 percent
  • Robert Half down 39 percent
  • True Blue down 31 percent
  • Kforce down 21 percent
  • AMN healthcare down 19 percent
  • Resources Connection down about 24 percent

Each serve different parts of the market.

Which is best? Every analyst will have an opinion, of course. I chatted with Morningstar's Vishnu Lekraj. His picks: AMN, known for nursing, which he believes is the best positioned because of its ties to the long-term secular trend in favor of healthcare; and Resources Global, which does project and professional staffing work.

Another way of looking at it: Of the group, the highest rated by Cash Flow Analyticsis Kforce, which focuses on government and professional staffing. Lekraj believes it is well positioned for the long-term. Over the past year, it has had the lowest slide in earnings (7.5 percent) even though its reported free cash flow margin is off by 62.4 percent.

Next highest rated: AMN, whose reported free cash flow margin rose 62.4 percent over the past year, while revenue from core operations tumbled 44.3 percent.

The reported free cash flow margin for Resources Connection, meanwhile, has plunged 60.66 percent over the past year, while revenue from core operations is off 37.1 percent. Its rated the lowest of the group by Cash Flow Analytics.

Herb’s Hook: None of these is perfect from a fundamental perspective, and companies cannot be graded on cash flow alone. But they would appear to be a classic contrarian play assuming the temporary help trends continue.

As usual, if you disagree with any of this or think I got it wrong, let me know. My email is herb.greenberg@nbcuni.com