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Robert Half or Kforce: Which Staffing Stock Should You Buy?

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The staffing industry is currently benefiting from economic growth. Higher wage growth, a tightening labor market, and a low unemployment rate, all indicate a bullish economy.

With low unemployment rate of 3.9% in July, the average level of jobless claims continues to hover over the 200,000 mark, which was last seen in the early 1970s. Robust manufacturing and non-manufacturing activities further boost optimism about growth of the industry.

The buoyancy in the staffing space is further confirmed by its Zacks Industry Rank in the top 44% (113 out of the 250 plus groups). Additionally, the industry has performed well so far this year compared with the broader Business Services sector and benchmark. It has gained 14%, significantly outperforming the broader sector's and Zacks S&P 500 Composite's rally of 11.6% and 5.9%, respectively, in the said time frame.

Given the promising developments in the industry, let's undertake a comparative analysis of two such stocks - Robert Half International Inc. RHI and Kforce Inc. KFRC . While Robert Half has a market capitalization of $9.17 billion, Kforce's market cap is $1.13 billion. Both the companies reported better-than-expected second-quarter 2018 results with year-over-year earnings and revenue growth.

As both stocks carry a Zacks Rank #2 (Buy), we are using certain other parameters to find out which company is better positioned. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Price Performance

Shares of Kforce and Robert Half have gained 66.4% and 38.8%, respectively, year to date. Though both the stocks have significantly outperformed the industry's rally of 14%, Kforce clearly scores over Robert Half.

Earnings Expectations

Earnings growth along with stock price gains is often an indication of a company's strong prospects.

Kforce's current-quarter earnings are projected to grow 46.7% compared with 33.8% for Robert Half. Looking at the full-year 2018 picture, Kforce's earnings are projected to grow 43.3% while that of Robert Half are expected to increase 32.7%. For 2019, Kforce's earnings are expected to register 15.7% growth compared with 11.3% for Robert Half.

Thus, Kforce has an edge over Robert Half 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.

Robert Half and Kforce have an impressive earning surprise history, with their earnings surpassing the Zacks Consensus Estimate in three of the previous four quarters.

However, Robert Half has a higher average positive earnings surprise than Kforce. The reading for Robert Half is 4% compared with 2.3% for Kforce.

Net Margin

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 6.1%, Robert Half not only compares favorably with the industry's figure of 3.4% but also has a lead over Kforce's 3% TTM net margin.

Valuation

The Price to Earnings Ratio (P/E) metric is used to measure a company's value relative to its earnings. In general, a lower number or multiple is considered better than a higher one.

The trailing 12-month price-to-earnings multiple for Robert Half and Kforce is 25.5 and 21.9, respectively, while that of the industry is 18.3. Although both the companies are overvalued relative to the industry, Kforce has a lower P/E ratio than Robert Half.

The EV/EBITDA metric is used to compare two stocks within the same industry and offers a clearer picture of a company's valuation because it includes debt. The ratio is often used in addition to the P/E ratio.

We observe that while Robert Half and Kforce have EV/EBITDA ratios of 14.7 and 13.5, respectively, the industry's figure stands at 9.3. Although both the companies compare unfavorably with the industry, Kforce has a lower EV/EBITDA value than Robert Half.

Though both the stocks look overvalued relative to the industry, Kforce is undervalued compared to Robert Half.

Bottom Line

Our comparative analysis shows that Kforce scores over Robert Half in terms of price performance and quarterly and yearly projected earnings growth. Robert Half has a edge in terms of net margin and earnings surprise history. Further, faster share price rally year-to-date has led to a rich valuation for both stocks compared to the industry.

Although both companies carry a Zacks Rank #2, Kforce, with a slightly better Style Score (Kforce has a VGM Score of A while Robert Half has a VGM Score of B) has a higher probability of success in the near term.

Other Stocks to Consider

Some other top-ranked stocks in the broader Business Services sector include Heidrick & Struggles International HSII , Insperity NSP , and BG Staffing BGSF . While Heidrick & Struggles sports a Zacks Rank #1, Insperity and BG Staffing carry a Zacks Rank #2.

The long-term expected earnings per share growth rate for Heidrick & Struggles, Insperity and BG Staffing is 13.5%, 18% and 20%, respectively.

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Robert Half International Inc. (RHI): Free Stock Analysis Report

Kforce, Inc. (KFRC): Free Stock Analysis Report

Heidrick & Struggles International, Inc. (HSII): Free Stock Analysis Report

Insperity, Inc. (NSP): Free Stock Analysis Report

BG Staffing Inc (BGSF): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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