Second wind for U.S. staffing stocks rests on economic outlook

Kforce

06/04/2017 18:52

By Lewis Krauskopf 
    NEW YORK, April 6 (Reuters) - A second wind for U.S. 
staffing companies' stocks, which rallied after President 
Trump's election, could rest on whether optimism over his agenda 
leads to sustained strength for the economy and employment. 
    Like other cyclical industries, staffing shares benefited 
from hopes that tax cuts and fiscal stimulus would boost growth 
and corporate earnings. Investors now want firm evidence that 
improving business confidence converts into a strengthening 
economy. 
    "The real key from here is that this confidence translates 
into orders for the staffing companies and that remains to be 
seen," said Chris Serra, analyst at Thrivent Asset Management. 
"To date, we have yet to see that in any significant way." 
    Shares of companies including Robert Half  RHI.N , True Blue 
 TBI.N  and On Assignment  ASGN.N  have climbed between 15 
percent and 50 percent since the Nov. 8 election, with the bulk 
of the gains following soon-after, as the potential for tax cuts 
also lifted the domestically focused industry. 
    "Stocks were basically signaling another recession and as 
soon as the election results hit, there's new life that was 
breathing into these staffing stocks," said Dan Dolev, analyst 
at Nomura Instinet. 
    A test of the economy's strength -- and for staffing stocks 
--  comes on Friday, when monthly U.S. employment data is 
released. New applications for unemployment benefits recorded 
their biggest drop in nearly two years last week, data on 
Thursday showed.  urn:newsml:reuters.com:*:nL2N1H621A 
    Federal Reserve officials believe the economy is at or near 
full employment. That means a growing economy could produce only 
moderate benefits for staffing companies, compared with the 
boost they would get earlier in the business cycle. 
    But analysts also point to a greater-than-usual number of 
Americans out of the workforce, so a return to more normal 
levels could support hiring of temporary workers. 
    "While the overall unemployment rate is low, the worker 
participation rates also continue to be low which suggests that 
perhaps there are portions of the labor market that are still 
being underutilized," said Mark Marcon, analyst with Robert W. 
Baird. 
    Staffing companies provide access to temporary employees, 
although the type of job and industry varies. Robert Half 
specializes in accounting and finance, TrueBlue focuses on 
blue-collar work, while On Assignment specializes in tech jobs. 
    The penetration rate of temporary workers of the U.S. 
workforce has been rising since mid last year, accounting now 
for slightly over 2 percent of nonfarm payroll employment, or 
2.9 million workers, according to Dolev. That rate stands at 
about its highest of the past three years. 
    "Structurally, it's become more attractive over time for 
companies to use temporary staffing as an alternative to 
full-time employees," said Eric Kuby, chief investment officer 
at North Star Investment Management, whose small-cap focused 
firm owns shares of BG Staffing  BGSF.A . 
    Even if the improved business sentiment translates into real 
economic growth and employment gains, some investors say 
staffing stocks may already have seen their best days. 
    Looking at valuation, five top staffing firms trade on 
average near 15 times earnings estimates for the next year. That 
is similar to their five-year average and below the 22-times 
long-term level. 
    That valuation contrasts with the broad S&P 500, which 
trades some 20 percent above historic norms. It also signals 
that investors expect moderate, mid-cycle economic growth. 
    Baltimore-based Adams Funds bought Robert Half shares last 
September, said Mark Stoeckle, the firm's CEO. They sold in 
January after the stock had gained more than 30 percent, he 
said. 
    "The easy money had been made, and we took the opportunity 
to recycle that into another stock," Stoeckle said. 
 
 (Reporting by Lewis Krauskopf; Editing by Andrea Ricci) 
 ((lewis.krauskopf@thomsonreuters.com; 646-223-6082; Reuters 
Messaging: lewis.krauskopf.thomsonreuters.com@reuters.net, 
Twitter: @LKrauskopf)) 
 
Keywords: USA STAFFING/STOCKS