Barrett Business Services Down to Strong Sell - Analyst Blog

Zacks Investment Research downgraded Barrett Business Services Inc. BBSI to a Zacks Rank #5 (Strong Sell) on May 13, 2014 following the dismal first-quarter results. Also, the company witnessed downward estimate revisions over the past 30 days.

Why the Downgrade?

Barrett Business Services reported first-quarter 2014 results on Apr 29 wherein its loss per share came in wider than both the Zacks Consensus Estimate as well as the year-ago quarter, primarily due to higher effective payroll taxes and higher share count.

Although the company reported year-over-year increase in revenues, it lagged the Zacks Consensus Estimate. The year-over-year growth was primarily attributable to continuous increase in the company's co-employed client count as well as same-store sales.

Nonetheless, higher-than-expected operating expenses, primarily due to higher incentive pay and increases in payroll expenses within selling, general and administrative expenses (SG&A) impacted the bottom-line results.

Also, the company witnessed lower estimate revisions for the second quarter and fiscal 2014 over the past 30 days, which led to a decline in earnings per share during the period. Earnings per share for the second quarter declined from $1.01 to 93 cents over the time frame. Subsequently, for fiscal 2014, earnings per share declined from $3.17 to $2.96.

It is worth noting that despite the continuing macro uncertainty, Barrett Business Services expects strong business pipeline and a healthy client base in the future.

Nonetheless, we prefer to wait and see whether the company's continued investment in operational infrastructure improvements rationalize margins in the near term. Moreover, growing competition from its peers remains a headwind, going forward.

Other Stocks to Consider

Some better-ranked stocks that are worth considering are Rambus Inc. RMBS, Hewlett-Packard HPQ and NVIDIA Corp. NVDA. While Rambus sports a Zacks Rank #1 (Strong Buy), Hewlett-Packard and NVIDIA have a Zacks Rank #2 (Buy).