Will Kforce (KFRC) Disappoint Yet Again in Q2 Earnings?

Staffing company Kforce Inc. KFRC is scheduled to report second-quarter 2016 results after the market closes on Aug 2.

In the last reported quarter, Kforce posted a negative earnings surprise of 4.00%, missing the Zacks Consensus Estimate by a penny. Kforce has a modest earnings track record for the past few quarters, beating earnings estimates in two of the trailing four quarters with an average positive earnings surprise of 3.25%.  

Let's see how things are shaping up for this announcement.

Factors to Consider  

Kforce provides professional and technical specialty staffing services and solutions globally. The company is in a restructuring mode as it continues to divest non-core operations and invest the proceeds in higher-growth markets.

Kforce has been witnessing strong growth across its businesses. Highly skilled specialty staffing demand is likely to boost the company's revenues. The company expects to leverage its strong customer relationships to further penetrate and capture more of those customers and expand in the growing markets. The company's cash flow generation continues to be strong and it aims to return capital to its shareholders in the form of dividends and stock repurchases.

KFORCE INC Price and EPS Surprise

KFORCE INC Price and EPS Surprise | KFORCE INC Quote

However, the company's business is subject to government regulations and licensing and the failure to obtain all necessary licenses or approvals could adversely affect Kforce's financial results. In addition, softness in the labor market, sluggish GDP growth and increased competitive pressure remain concerns for the company.

Due to a challenging macroeconomic environment, Kforce has been facing significant declines in a few of its largest clients over the past few quarters. Business disruption and internal organizational challenges faced by these clients have impacted Kforce's overall revenues and is likely to remain a concern in the impending quarter as well.

For the second quarter, the company expects revenues to be in the range of $332 million to $337 million with earnings in the range of 39 cents and 42 cents per share.

Earnings Whispers

Our proven model does not conclusively show that Kforce is likely to beat earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for a successful earnings beat. This is not the case here as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and Zacks Consensus Estimate, is currently pegged at -2.50%.

Zacks Rank: Kforce's Zacks Rank #3 when combined with negative ESP makes an earnings beat uncertain. We caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Sun Communities Inc. SUI has an Earnings ESP of +1.22% and a Zacks Rank #2.

National Health Investors Inc. NHI has an Earnings ESP of +0.83% and a Zacks Rank #2.

CDK Global Inc. CDK has an earnings ESP of +4.26% and a Zacks Rank #1.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>