Analysts' Choice: Robert Half's Got Talent

4/4/2016


  Recent Price
$46
  Dividend
$0.88
  Yield
1.9%
  P/E Ratio
17
  Shares (millions)
131
  Long-Term Debt As % Of Capital
0%
  52-Week Price Range
$60.63 - $36.17

After years of stagnation, U.S. wage growth has showed some signs of picking up, pressuring profit margins for many industries. Robert Half International ($46; RHI) is one of few companies that should benefit from a tighter labor market and rising wages. The staffing agency helps companies find white-collar professionals for temporary and permanent positions. It placed about 220,000 workers — including accountants, consultants, attorneys, technology specialists, and administrative assistants — on temporary assignment last year.

The company is highly sensitive to global labor trends, especially in the U.S., which accounted for 81% of sales last year. Amid rising fears that the U.S. may tumble into a recession, the stock slumped in the first two months of 2016. But shares have rebounded 16% since the end of February on renewed confidence that the U.S. labor cycle will continue its upswing.

The U.S. unemployment rate stands at an eight-year low of 4.9%, and many professional occupations are nearing full employment, boosting the value of Robert Half's services. Robert Half said global revenue for the first few weeks of January increased 6% for flexible staffing and 7% for permanent placement. Robert Half was added to the Focus List last week.

Labor cycle on upswing

Robert Half's results depend on average hourly billing rates, volume of hours worked, and fees generated from placing workers in permanent positions. All three factors trended higher last year.

Revenue from the U.S. climbed 13% last year, offsetting an 8% decline overseas. Robert Half grew 2015 sales 7% from both temporary staffing (77% of 2015 sales and 69% of operating income) and permanent-placement staffing (8%, 15%). Revenue surged 19% for risk-consulting and internal-audit services (15%, 17%), which benefited from rising customer demand in order to meet stricter compliance regulations. Operating profit margin expanded at all three units.

The steadily improving U.S. economy has translated into remarkably consistent growth for Robert Half. Per-share profits have exceeded 12% growth in 23 straight quarters. Robert Half has also delivered 23 consecutive quarters of higher sales. Cash from operations has declined just once in the past 21 quarters.

Robert Half repurchased 4.8 million shares last year, lowering its share count 2.6%. Over the past decade, it has cut its share count 24%, paying an average price of about $32 per share.

A half-full outlook

Robert Half's profit margins will likely keep expanding, given that wage inflation tends to accelerate in the late stages of the labor cycle. The full-year consensus profit estimate of $3.00 per share implies 12% growth on 8% higher revenue. Robert Half trades at 15 times estimated 2016 earnings, a 7% discount to the average human-resources and employment-services stock in the S&P 1500 Index. We view that discount as unwarranted given Robert Half's industry-leading return on equity.

An annual report for Robert Half International Inc. is available at 2884 Sand Hill Road, Menlo Park, CA 94025; (650) 234-6000; www.roberthalf.com.

ROBERT HALF INTERNATIONAL
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Dec '15
0.71
vs.
0.62
7%
54.01
-
44.95
21 - 17
Sep '15
0.73
vs.
0.63
7%
58.00
-
49.18
23 - 20
Jun '15
0.67
vs.
0.55
9%
60.54
-
54.58
25 - 23
Mar '15
0.58
vs.
0.45
11%
63.27
-
55.60
28 - 25
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2015
5.09
2.69
0.80
63.27
-
44.95
24 - 17
2014
4.70
2.26
0.72
59.45
-
38.62
26 - 17
2013
4.25
1.83
0.64
42.33
-
30.64
23 - 17
2012
4.11
1.50
0.60
32.32
-
25.10
22 - 17
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
90
66
79
97
71
55
27

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.


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