Investing.com -- Jefferies in a note dated Tuesday flagged a growing divergence in the performance and outlook of Adecco (SIX:ADEN) and Randstad (AS:RAND), two major European staffing companies, within a challenging industry environment.
The analysts downgraded Adecco to "underperform" while upgrading Randstad to "buy," reflecting a cautious but selective investment approach within the sector.
According to Jefferies, the broader staffing sector is grappling with persistent difficulties, with indicators such as PMI data and consumer confidence pointing to subdued economic activity.
The labor market, while not in a full-fledged recession, is characterized by weak corporate hiring sentiment and hesitant workforce mobility. Against this backdrop, Adecco and Randstad are charting markedly different paths.
Adecco's downgrade reflects structural and financial challenges. Jefferies analysts identified the company’s high leverage, about three times EBITDA, as a key concern, alongside the likelihood of a prolonged period of weak earnings momentum.
The analysts estimate Adecco’s 2025 EBIT to fall 5-7% below consensus expectations, driven by ongoing operational difficulties and limited growth prospects.
Adding to the pressure, Adecco may face the necessity of a dividend cut over the next two years to stabilize its balance sheet.
The note suggests this action, while potentially unpopular, could be essential for addressing the company’s financial vulnerabilities.
Jefferies set a price target of CHF 19.5, down from CHF 29, emphasizing the limited upside potential in the near term.
In contrast, Randstad has been upgraded, with analysts citing the company’s favorable earnings trajectory and financial strength.
Jefferies raised the price target to EUR 50 from EUR 42, positioning Randstad as the preferred pick in the European staffing space.
The company is expected to return to year-on-year earnings growth as early as the first half of 2025, benefiting from easier comparisons and a stronger operational mix.
Randstad's strong balance sheet positions it for shareholder returns over the next one to two years.
The company's focus on efficiency and adaptability is crucial for navigating the current challenges within the staffing sector.
Jefferies remains cautious on the staffing sector as a whole, pointing to several factors that hinder a broader rebound.
These include weak macroeconomic indicators, structural shifts such as automation, and a longer hiring decision cycle among corporates.
While the analysts acknowledge that the sector is trading near the lower end of its historical valuation range, it suggests that any significant recovery is unlikely without clearer signs of economic improvement.
Among other companies, Jefferies maintained a "buy" rating for Hays (LON:HAYS), citing its strong exposure to temporary staffing, and a "hold" rating for PageGroup, reflecting balanced risks and opportunities.
The contrasting assessments of Adecco and Randstad underscore the importance of selectivity in the current market environment.
Investors may need to weigh factors such as financial health, operational efficiency, and exposure to growth segments when evaluating opportunities in the staffing sector.
The upcoming 2025 earnings reports for both companies will provide further clarity on their trajectories.
Jefferies' analysis currently favors Randstad as a more attractive investment option compared to Adecco, which faces ongoing financial and operational challenges.