Barclays On Staffing: Robert Half Downgraded To Underweight, Buy Manpower On Weakness

In a report published Tuesday, Barclays analyst Manav Patnaik said that investors seemed to be “rotating out of” Robert Half International Inc. RHI, while ManpowerGroup Inc. MAN was an “inexpensive play on a European recovery.”

Analyst Manav Patnaik maintained an Overweight rating on ManpowerGroup, while raising the price target from $100 to $105. The European recovery is in the early stages, and the company has exposure to this. Moreover, the weakness in the company’s shares, which declined 5.7 percent over the past week versus a decline of 2.8 percent in the S&P is a “buying opportunity,” Patnaik added.

Although ManpowerGroup beat earnings expectations in 2Q15, investors were disappointed about the company’s France growth of 4 percent y/y and flat q/q as well as about the “commentary around a deceleration to +2% in late June/early July.” Patnaik believes that the company could “reset” its 4 percent EBITA margin targets.

Barclays downgraded the rating on Robert Half from Equal-Weight to Underweight, while reducing the price target from $60 to $55. Although the company reported strong 2Q15 and 1H15 results, its shares are down 6 percent since its announcement, “confirming to us lofty investor expectations.”

Patnaik commented, “We see decelerating organic revenue growth (albeit still HSD) outweighing the margin expansion story (which we feel we have adequately modeled to 12% by 2016 – same as the prior peak in 1998 and vs. 10.6% in 2014), as the main drivers of recent pressure on RHI’s earnings multiple.”

The report noted that the stock’s current valuation reflected concerns around revenue growth, which is “unlikely to re-accelerate” on account of:

• An improving US job market – Robert Half indicated candidate shortages and increased counter offers during its 1Q call
• Currency headwinds had a higher-than-expected impact and is likely to “continue to be a drag”
• The company is faced with the toughest y/y comps in 2H15