The staffing industry is growing steadily on promising developments in the broader economy. Trump administration’s business-friendly approach, including tax cuts and higher government spending, has been a major catalyst. Thriving manufacturing and non-manufacturing activities on the back of favorable policies are leading to additional hiring and wage increase.
Staffing firms are shifting toward employee-friendly, technology-based recruiting techniques like social media, mobile technology, artificial intelligence and big data. Also, technologies like cloud and blockchain offer more storage and safety to HR data. These trends are propelling demand for staffing services.
The Zacks Staffing Industry is a group within the broader Zacks Business Services Sector. The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid growth prospects in the near term. It carries a Zacks Industry Rank #49, which places it in the top 19% of more than 250 Zacks industries.
Given this backdrop, let’s do a comparative analysis of two staffing stocks — Korn/Ferry International (NYSE:KFY) and Kforce Inc. (NASDAQ:KFRC) . Korn/Ferry has a market capitalization of $2.7 billion and Kforce’s market cap is $920.7 million.
As the stocks carry a Zacks Rank #3 (Hold), we are using other parameters to provide investors a better insight.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price Performance
Shares of Kforce have gained 27.2% in the past year against Korn/Ferry’s decline of 5.5% and the industry’s fall of 3.2%. So, Kforce clearly scores over Korn/Ferry.
Earnings Guidance
Earnings growth along with stock price gains is often an indication of a company’s strong prospects.
Korn/Ferry’s current quarter earnings are projected to grow 11.3% year over year while that of Kforce are expected to increase 5.4%. Looking at the full year picture, Korn/Ferry’s earnings are projected to grow 22.8% while that of Kforce are expected to increase 9.6%. Thus, Korn/Ferryhas an edge over Kforce in terms of quarterly and yearly earnings growth expectations.
Earnings Surprise History
The earnings surprise history of a stock helps investors an idea of the stock’s performance in the previous quarters.
Kforce and Korn/Ferry have an impressive trailing four quarter earnings surprise history. Korn/Ferry delivered higher average positive surprise of 7.2% compared with Kforce’s 3.8%.
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.
Korn/Ferry’s TTM net margin of 9.4% is above Kforce’s figure of 4.1% and the industry’s tally of 3.8%.
Valuation
EV/EBITDA is a commonly used multiple for the staffing industry. We observe that while Korn/Ferry and Kforce have trailing 12-month EV/EBITDA ratios of 8.77 and 11.14, respectively, the industry’s figure is at 8.27X. Although the companies compare unfavorably with the industry, Korn/Ferry has a lower EV/EBITDA value than Kforce.
So, Korn/Ferry looks cheap compared with Kforce.
Bottom Line
Our comparative analysis shows that Korn/Ferry scores over Kforce in terms of quarterly and yearly expected earnings growth, earnings surprise and net margin. Also, Korn/Ferry is trading cheap compared with Kforce. A fast share price rally in the past year led to a rich valuation for Kforce.
Stocks to Consider
A few better-ranked stocks in the broader Business Services sector include Omnicom (NYSE:OMC) and Paychex (NASDAQ:PAYX) , each carrying a Zacks Rank of 2 (Buy).
Long-term expected EPS (three to five years) growth rate for Omnicom and Paychex is 4.7% and 8.8%, respectively.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
Omnicom Group Inc. (OMC): Free Stock Analysis Report
Kforce, Inc. (KFRC): Free Stock Analysis Report
Korn/Ferry International (KFY): Free Stock Analysis Report
Paychex, Inc. (PAYX): Free Stock Analysis Report
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Zacks Investment Research