The staffing industry has been growing roughly two times faster than the economy on average since the end of the Great Recession.A strong U.S. economy and Trump’s business-friendly moves have been benefiting manufacturing and non-manufacturing sectors, which, in turn, are leading to additional hiring and wage increase.
Staffing firms are shifting toward employee-friendly, technology-based recruiting techniques like social media, mobile technology, artificial intelligence and big data. Also, technologies like cloud and blockchain offer more storage and safety to HR data. These trends should keep demand for staffing services in good shape.
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 $148.1 billion in 2018. For 2019 and 2020, revenues are anticipated to be around $153.5 billion and $157.8 billion, respectively.
Given these promising developments in the industry, let’s undertake a comparative analysis of two stocks — Insperity, Inc. NSP and ManpowerGroup Inc. MAN. Both the stocks are part of the Zacks Staffing industry, which is housed within the broader Zacks Business Services sector. While Insperity has a market capitalization of $5.30 billion, ManpowerGroup’s market cap is $5.74 billion.
As both 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.
Over the past year, shares of Insperity have gained 33.4% against 6.4% decline of the industry it belongs to. Shares of ManpowerGroup have gained 10.3% in the same time frame.
Earnings growth along with stock price gains is often an indication of a company’s strong prospects.
Insperity’s second-quarter 2019 earnings are projected to grow 22.1% while that of ManpowerGroup are expected to decline 15.3%. For full-year 2019, Insperity’s earnings are projected to grow 25.1% while that of ManpowerGroup are expected to decrease 12.4%. For 2020, Insperity’s earnings are expected to register 17.4% growth compared with 7.4% 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 last four quarters.
However, Insperity delivered a higher average positive earnings surprise of 10.5% compared with 4.1% 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.
With a TTM net margin of 4.1%, Insperity not only compares favorably with the industry’s figure of 3.4% but also has a lead over ManpowerGroup’s 2.4% TTM net margin.
EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization) ratio is the commonly used metric for valuing staffing services stocks because of their high debt levels.
We observe that Insperity and ManpowerGroup have EV/EBITDA ratio of 20.9 and 7.5, respectively compared with the industry’s figure of 7.8. The numbers clearly show 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 in the past year has led to a relatively rich valuation for Insperity compared to ManpowerGroup.
Stocks to Consider
A couple of better-ranked stocks in the broader Zacks Business Services sector are FLEETCOR Technologies FLT and NV5 Global NVEE, each carrying a Zacks Rank #2 (Buy). Long-term expected EPS (three to five years) growth rate for FLEETCOR and NV5 Global is 15.4% and 20%, respectively.
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