On Aug 8, Zacks Investment Research downgraded staffing and
outsourcing services provider
Kelly Services, Inc.
) to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold), primarily
due to a poor earnings miss in the just-reported quarter.
Kelly Services' share prices have gone downhill since April this
year. Despite the downtrend, the company still has the potential to
drive the stock up as it completes the transition of large U.S.
accounts into a centralized service delivery model. The stock is
currently trading at a forward P/E of 20.6x.
Why the Downgrade?
Kelly Services reported dismal second-quarter 2014 results with
non-GAAP earnings of $4.0 million or 10 cents per share, down from
$12.5 million or 33 cents per share in the year-ago period. The
adjusted earnings badly missed the Zacks Consensus Estimate of 18
GAAP income of $2.8 million or 7 cents per share also decreased
significantly from $10.0 million or 26 cents per share in the
year-ago quarter. The year-over-year decrease in earnings was
primarily due to higher operating expenses. Although total revenue
increased 3.2% year over year to $1,410.5 million, it failed to
meet the Zacks Consensus Estimate of $1,414.0 million.
Management further expects operating expenses in the upcoming
quarter to be adversely affected by regulatory pressures including
the impact of implementation of the Affordable Care Act. At the
same time, investments to drive growth in the PT (Professional
Technical) staffing business and develop the solutions capability
in OCG (Outsourcing and Consulting Group) are likely to strain the
The current Zacks Consensus Estimates for the ongoing quarter and
full year 2014 are pegged at 35 cents and 77 cents, respectively,
representing a year-over-year decline of 30.4% and 52.8%. These
reflect a negative investor perception about the growth prospects
of the company. Consequently, Kelly Services is susceptible to
further downgrade in the imminent future.
Other Stocks to Consider
Other stocks in the industry that are worth reckoning include
ManpowerGroup Inc. (
), Robert Half International Inc. (
) and TrueBlue, Inc. (
), each carrying a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
KELLY SVCS A (KELYA): Free Stock Analysis
MANPOWER INC WI (MAN): Free Stock Analysis
ROBT HALF INTL (RHI): Free Stock Analysis
TRUEBLUE INC (TBI): Free Stock Analysis Report
To read this article on Zacks.com click here.