Deutsche Bank: Avoid Staffing Stocks In 2016

• While Robert Half International Inc. RHI shares are down year-to-date, shares of ManpowerGroup Inc. MAN and On Assignment, Inc. ASGN have surged.
• Deutsche Bank’s Paul Ginocchio downgraded the ratings on the companies from Buy to Hold.
• Majority of the labor cycle seems to be over and the probability of being close to the end continues to rise, Ginocchio said.

Analyst Paul Ginocchio wrote, “While it's hard to predict the end of a cycle, we think the probability of being close to the end continues to rise based on the temp and macro data.” While the labor market is tight and incremental temp usage continues to decline, the confirmation of late cycle would be a jump in Robert Half’s US permanent placement fee growth.

“While we are confident its later cycle, we are not yet confident in calling a recession in late 2016 or early 2017, which we think needs to occur for the stocks to meaningfully underperform from here,” Ginocchio added.

ManpowerGroup

The analyst reduced the price target for the company from $95 to $83. He added that ManpowerGroup’s substantial share buyback and the improving European PMIs keep EPS stable to slightly higher in the near term.

The EPS estimate for 2016 has been reduced by 2 percent from $6.14 to $6.02, to reflect FX headwinds and lower organic growth expectations.

Robert Half International

Ginocchio reduced the price target for the company from $60 to $47. He said that a potential acceleration in perm placement fees in 2016 is likely to result in the consensus EPS being raised, which would help offset the expected multiple contraction.

The EPS estimate for 2016 has been reduced by 2.5 percent from $3.20 to $3.12, to reflect currency headwinds and lower organic growth estimates.

On Assignment

Ginocchio said that of all the Hold ratings, “we feel relatively more positive” on On Assignment due to its IT staffing exposure. The EPS estimate for 2016 has been left unchanged at $3.18.

The Morgan Stanley report noted, “With our view that we are late cycle, we have adjusted our price targets to reflect late cycle multiples. However, we value ASGN at 19x, which is a discount to its recent trading range.”