Zacks Industry Outlook Highlights Korn Ferry, Heidrick & Struggles International and RCM Technologies
For Immediate Release
Chicago, IL – December 26, 2023 – Today, Zacks Equity Research discusses Korn Ferry KFY, Heidrick & Struggles International, Inc. HSII and RCM Technologies, Inc. RCMT.
Industry: Staffing Firms
Link: https://www.zacks.com/commentary/2201381/here-are-3-staffing-stocks-to-consider-amid-industry-woes
While service activities are currently in good shape, their positive impacts on the Staffing Firms industry are being partially offset by contracting economic activity in the manufacturing sector.
However, successful remote work and the increased use of technology are helping Korn Ferry, Heidrick & Struggles International, Inc. and RCM Technologies, Inc.
Industry Description
The Zacks Staffing industry is a diverse sector encompassing companies that offer a comprehensive range of human resources and workforce solutions. These services cover various aspects of personnel management, including employment screening, recruitment services for both temporary and long-term job placements, retirement planning, human capital management, payroll administration, performance evaluation, organizational planning and financial management.
Additionally, some firms within this industry provide specialized services such as staffing and risk consulting, professional staffing and global business solutions tailored to the needs of small to medium-sized enterprises. They also offer organizational consulting services with a global reach, catering to a wide and varied client base, which includes domestic and international businesses across different sectors and industries.
4 Factors Influencing the Future of the Staffing Industry
Stable Demand: The industry is mature, with the demand for services remaining stable over time. Revenues, income and cash flows are anticipated to gradually reach pre-pandemic levels, aiding most industry players in paying out stable dividends. Furthermore, an increase in gross domestic product (GDP) growth is in favor of the industry. T
he real GDP for the third quarter of 2023 increased at an annual rate of 4.9%, according to the "third" estimate by the Bureau of Economic Analysis. In the prior quarter, real GDP increased 2.1% (revised).
Increased Adoption of Remote Work and Hybrid Models: The swift increase in remote work due to COVID-19 has led staffing agencies to prioritize flexible staffing solutions, including remote and hybrid models. These adaptations align with the desires of both clients and job seekers for improved work-life balance. With the continued prevalence of remote work, staffing agencies are anticipated to prioritize and effectively meet evolving workplace preferences.
Technology Usage Gains Traction in Staffing: The staffing sector is progressively using technology to optimize operations, improve efficiency and deliver superior services. The adoption of tech-driven recruitment approaches, including AI, social media and Big Data, is increasing. Video-conferencing platforms such as Zoom and Microsoft Teams facilitate remote communication, and cloud and blockchain technologies bolster HR data security. This ensures continual demand for staffing services.
Unemployment Rate Currently High: Even though there was a slight decrease in the employment rate in November 2023, it came in at 3.7%, taking the total figure to 6.3 million. Furthermore, the Conference Board's Employment Trends Index, a pivotal composite indicator for employment, declined from a revised 113.09 in October to 113.05 in November.
Adding to these concerns, the manufacturing sector continued to contract for the 13th consecutive month in August, following a 28-month growth period, as reported by supply executives in the latest Manufacturing ISM Report On Business. In light of these economic indicators, the employment trend suggests that while job gains may persist in the upcoming months, the pace of growth is expected to diminish, potentially leading to job losses in the future.
Zacks Industry Rank Indicates Disappointing Future
The Zacks Staffing Firms industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #171. This rank places it in the bottom 32% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued underperformance in the near term. Our research shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The analysts covering the companies in this industry have been decreasing their estimates. Over the past year, estimates for the industry's current-year earnings have decreased 22.4%.
Before we present a few stocks that you may want to consider for your portfolio, let's take a look at the industry's recent stock market performance and current valuation.
Industry's Price Performance
The Zacks Staffing Firms industry has lagged the broader Zacks Business Services sector and the Zacks S&P 500 composite over the past year.
The industry has advanced 9.4% over this period compared with a 21% rise of the broader sector and a 23.7% increase of the Zacks S&P 500 composite.
Industry's Current Valuation
On the basis of EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization), which is commonly used for valuing staffing stocks because of their high debt levels, the industry is currently trading at 7.37X compared with the S&P 500's 13.62X and the sector's 27.02X.
Over the past five years, the industry has traded as high as 13.27X, as low as 3.63X and at the median of 6.88X.
3 Staffing Stocks to Keep a Close Eye On
Amid tough times for the staffing industry, here are a few selected stocks that are poised to benefit in the near term.
RCM Technologies, sporting a Zacks Rank #1 (Strong Buy), is a leading national provider of business and technology solutions, specializing in IT and professional engineering services for corporate and government clients. The company excels in IT areas such as resource augmentation, e-business, Enterprise Resource Planning support and network infrastructure. In engineering, RCM offers expertise in technical design, field engineering, support, procedures development and project/program management. You can see the complete list of today's Zacks #1 Rank stocks here.
RCM Technologies showcases industry expertise and a commitment to innovation. Positive client relationships, financial stability, global presence, a skilled workforce, strategic partnerships, regulatory compliance and a strong market reputation contribute to its favorable standing. The continuous monitoring of these factors is crucial for informed decision-making.
For 2023, the Zacks Consensus Estimate for RCMT is pegged at $2, revised northward by 11.1% in the past 60 days. The company surpassed earnings estimates in two of the four trailing quarters and missed twice, with an average beat of 13.3%.
Heidrick & Struggles International: This Zacks Rank #2 (Buy) company is a renowned global executive search and leadership consulting firm headquartered in the United States. It specializes in identifying high-level executive talent for organizations, including CEOs and board members. The company also provides leadership advisory services to assist clients in improving their leadership teams. With a strong reputation in executive search and leadership consulting, Heidrick & Struggles contributes significantly to shaping corporate leadership dynamics worldwide.
Heidrick & Struggles excels with a global presence, industry expertise, successful track record, leadership consulting, innovation, diversity focus, client-centric approach, thought leadership, adaptability and a commitment to ethics, making it a trusted choice for executive search and leadership consulting.
For 2023, the Zacks Consensus Estimate for HSII's earnings is pegged at $2.88, revised northward by 4% in the past 60 days. The company surpassed earnings estimates in each of the four trailing quarters, with an average beat of 16.5%.
Korn Ferry, having a Zacks Rank #2, is the premier global executive recruitment firm that operates on a retained basis, addressing recruitment needs from middle to executive management. Serving a diverse clientele, including major corporations, middle-market firms and governmental entities, KFY is renowned for its extensive global presence and leadership in the executive recruitment industry.
Korn Ferry excels in global executive search, offering comprehensive talent solutions, industry specialization, technology integration and a focus on diversity. With a reputation for client-centricity and research-driven insights, the firm delivers personalized and effective organizational consulting services.
For 2023, the Zacks Consensus Estimate for KFY's earnings is pegged at $3.93, revised northward by 2.9% in the past 60 days. The company surpassed earnings estimates in three of the four trailing quarters and missed once, with an average beat of 5.2%.
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