Chicago, IL – July 26, 2022 – Today, Zacks Equity Research discusses Korn Ferry KFY, Cross Country Healthcare, Inc. CCRN and Kelya Services KELYA.
Industry: Staffing
Link: https://www.zacks.com/commentary/1957305/3-stocks-to-watch-in-a-challenging-staffing-services-industry
There has been a solid transition from a candidate-driven market to a job-oriented market of late. Staffing companies are finding new opportunities with the digitization of the workforce. The remote working model is leading to cost savings for industry players by bringing down their spending on real estate and reduction of business travel. These factors bode well for companies in the Zacks Staffing industry. Additionally, continued government response in the form of pandemic-relief packages and expanded unemployment benefits have been acting as other tailwinds.
Korn Ferry, Cross Country Healthcare, Inc. and Kelya Services are some stocks that are likely to gain from the abovementioned industry trends. However, job loss concerns amid market uncertainties persist.
The Zacks Staffing industry comprises companies, which provide a wide range of services related to human resources, and workforce solutions and services. These include employment screening, recruitment (both for temporary staffing and long-term placements), retirement solutions, human capital management, payroll management, performance management, organizational planning, and financial and expense management. Some industry participants also provide staffing and risk consulting services, professional staffing services and solutions in the United States and internationally, and business solutions to improve the performance of small and medium-sized businesses as well as organizational consulting services worldwide.
Healthy Demand Environment:The industry has been witnessing growth in revenues and income over the past few years, which enabled most players to pay out stable dividends and repurchase shares. The industry also stands to benefit from the gradual resumption of business activities, which were postponed or restricted by the coronavirus-triggered strict lockdowns across the globe. This led to additional hiring and wage increase.
Economic Recovery: The staffing industry stands to benefit from the gradual resumption of business activities, which were postponed or restricted due to the coronavirus-induced strict lockdowns across the globe.
The industry is a major beneficiary of manufacturing and service activities, which in turn, are dependent on economic health. The Institute for Supply Management measured that both Manufacturing PMI and Services PMI clocked the 25th consecutive month of expansion in June.
Strength in manufacturing and service activities, led to additional hiring and wage increase. The U.S. economy added 372,000 jobs in June, with the unemployment rate constant at 3.6% since April 2022. Average hourly earnings in June increased 10 cents to $32.08, registering a 5.1% increase from the year-ago period's reported figure.
Increased Adoption of Technologies: Technology-based recruiting techniques like social media, mobile technology, artificial intelligence and Big Data have become popular. Video-conferencing tools, such as Google Meet, Zoom, Skype and Microsoft Teams, are being used to communicate with clients, conduct interviews and meetings, manage staff virtually plus handle remote training and remote surveillance. Also, technologies like the cloud and blockchain offer more storage and safety to HR data. These trends should keep the demand for staffing services in good shape.
The COVID-induced remote working model led to cost savings for many firms by bringing down their spending on real estate and reducing business travel. Staffing companies are also finding new opportunities with the digitization of the workforce and demand for software-as-a-service solutions to meet new challenges in the current scenario.
The Zacks Staffing industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #226. This rank places it in the bottom 10% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that investors can buy given their sturdy potential, let's take a look at the industry's recent stock market performance and current valuation.
The Zacks Staffing industry has outperformed the broader Zacks Business Services sector but lagged the Zacks S&P 500 composite over the past year.
The industry has declined 12.6% over this period compared with a 44.2% decline of the broader sector. The Zacks S&P 500 composite has lost 11.2% in the said time frame.
On the basis of EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization), which is commonly used for valuing staffing stocks because of their high debt levels, the industry is currently trading at 5.89X compared with the S&P 500's 12.23X and the sector's 20.86X.
Over the past five years, the industry has traded as high as 13.26X, as low as 3.63X and at the median of 8.07X.
We are presenting three stocks that are well-positioned to grow in the near term. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Kelly Services: This Zacks Rank #1 company offers workforce solutions to various industries. The company's top line benefits from increased customer demand and contribution from the acquisition of Softworld. This revenue growth combined with structural improvement in gross profit aids the company's bottom line.
The Zacks Consensus Estimate for Kelya's 2022 EPS has moved up 3.9% in the past 90 days. KELYA's stock has gained 1% over the past three months.
Korn Ferry: This Zacks Rank #2 (Buy) California-based company provides organizational consulting services worldwide.Korn Ferry continues to benefit from its business model, which is highly diversified in terms of geography, segment and industry. Revenue growth, operational efficiencies and reduction in expenses have been aiding the bottom line for a while. KFY's solid cash position allows it to pursue strategic acquisitions, invest in growth initiatives and return cash through regular quarterly dividend payments and share repurchases.
The Zacks Consensus Estimate for Korn Ferry's 2022 EPS has moved up 3.8% in the past 90 days. KFY's stock has gained 1% over the past three months.
Cross Country Healthcare: This Zacks Rank #3 (Hold) company provides innovative healthcare workforce solutions and staffing services. CCRN's diverse client base includes both clinical and nonclinical settings, servicing acute care hospitals, physician practice groups, outpatient and ambulatory-care centers, nursing facilities, both public schools and charter schools, rehabilitation and sports medicine clinics, government facilities and homecare. Cross Country Healthcare is able to place clinicians on travel and per diem assignments, local short-term contracts and permanent positions.
CCRN's stock has gained 31.7% over the past three months.
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KornFerry International (KFY) : Free Stock Analysis Report
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