Here's Why You Should Hold On To Robert Half (RHI) Stock

Shares of Robert Half International (NYSE:RHI) have returned 15.2% in the past six months, significantly outperforming the industry’s growth of 14.7%.

The stock also looks good when compared with the market at large, as the S&P 500 index has gained 10% in the said time frame.

Let’s discuss the company’s performance and operations briefly to see why investors should hold on to this stock for now in spite of the adversities it faces.

What’s Going in its Favor?

The company’s international presence has paid off in terms of top-line growth. Robert Half enjoys increasing demand for its professional staffing services. We note that Robert Half’s currency-neutral staffing revenues from international regions increased 15% to $269 million in fourth-quarter 2017, while the same at Protiviti rose 23% to $41 million.

Considering lower U.S. unemployment levels, which indicate that companies are increasingly adding jobs, the demand for professional staffing services continues to be on the rise. Evidently, Global Staffing U.S. revenues climbed 2% to $863 million in fourth-quarter 2017.

Management has provided an insight into the trends. Temporary and consulting staffing revenues grew 3.3% in the first two weeks of January. For the first three weeks of January, revenues from permanent placement division advanced 11.9% year over year.

We appreciate the company’s shareholder-friendly moves of dividend payments and share buybacks. In fourth-quarter 2017, Robert Half bought back 1.1 million shares for $59 million. On Feb 13, 2018, the company’s board of directors further approved the repurchase of an additional 10 million shares of the company's common stock. Apart from this, the company has approximately 2.3 million shares under its existing share repurchase plan. Moreover, the company also approved a dividend hike from 24 cents per share to 28 cents per share. The cash dividend was paid on Mar 15, 2018 to shareholders of record as of Feb 23, 2018.

Backed by broad-based growth across all segments and regions, with permanent placement being the outperformer, the company reported solid fourth-quarter 2017 results, wherein both the top and bottom lines improved year over year and surpassed the Zacks Consensus Estimate.

Going forward, reduced tax rates will likely lead to greater retention of profits, which will help the company allocate more funds toward corporate reformation and development efforts. Investments in software initiatives and technology infrastructure should boost the company’s growth opportunities.

Upward Estimate Revisions, Zacks Rank & Style Score

The direction of estimate revisions serves as an important pointer when it comes to the price of a stock. Over the last 90 days, the Zacks Consensus Estimate for current quarter earnings increased 10.6% to 73 cents per share. Full-year 2018 earnings estimates increased 12.5% to $3.23 per share in the same time frame.

Further, current quarter and full-year 2018 sales are estimated to rise 5.5% and 5.8%, respectively.

The upward estimate revisions reflect optimism over the prospects of this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Additionally, the stock’s VGM Score of B highlights its short-term attractiveness. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of all three scores.

Despite the positives, we remain concerned about the following risks.

Downsides

The company faces stiff competition from many other firms in the staffing space — on a national, regional and local level — mainly in terms of pricing and reliability of services. Extensive international presence increases the company’s exposure to foreign currency exchange rate risks. This might affect its top line. Apart from this, the company also remains vulnerable to political, regulatory and legal risks.

Higher operating expenses are another major headwind. Robert Half’s SG&A expenses increased 7.6% to $424.4 million in fourth-quarter 2017, mainly due to higher staffing costs. This also weighed on the company’s operating margin that contracted 30 basis points to 9.6%.

Unfavorable Metrics

Considering price-to-earnings (P/E) ratio, Robert Half looks pretty overvalued when compared with the industry. The stock has a trailing 12-month P/E ratio of 22.75. On the contrary, the trailing 12-month P/E ratio for the industry is 20.16.

Stocks to Consider

Some better-ranked stocks from the same space include ManpowerGroup (NYSE:MAN) , Kforce Inc. (NASDAQ:KFRC) and Korn/Ferry International (NYSE:KFY) . All the stocks currently sport a Zacks Rank #1.

Sales for ManpowerGroup, Kforce and Korn/Ferry are estimated to rise 13%, 3.4% and 11.9%, respectively, for the current quarter.

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