RHI Stock Study (6-24-24)

Posted by Mark on August 4, 2024 at 07:22 | Last modified: June 24, 2024 08:13

I recently studied Robert Half Inc. (RHI) with a closing price of $65.05. The previous study is here.

M* writes:

     > Founded in 1948, Robert Half provides temporary, permanent,
     > and outcome-based staffing for both in-person and remote
     > positions in the finance and accounting, technology, legal,
     > marketing, and administrative fields. Its subsidiary consulting
     > arm, Protiviti, specializes in technology, risk, auditing, and
     > compliance matters. The firm generates most of its sales inside
     > the U.S. and stands as one of the largest specialized firms in
     > the highly fragmented U.S. staffing industry. The firm
     > generates annual revenue of around $7 billion.

Over the past decade, this medium-size company has grown sales and EPS at annualized rates of 3.8% and 9.2%. Lines are zigzag up and parallel with sales declines in ’20 and ’23 along with EPS declines in ’16, ’17, ’20, and ’23. The stock appears more cyclical than “up, straight, and parallel.” While it passed in Oct 2024, I’m not sure it passes visual inspection now.

Over the past decade, PTPM leads peer and industry averages while ranging from 8.3% in ’20 to 12.4% in ’21 and ’22 with a last-5-year mean of 10.5%. ROE trails peer and industry averages while ranging from 25.4% in ’17 to 45.1% in ’21 with a last-5-year mean of 36.1%. Debt-to-Capital is lower than peer and industry averages as the company has no long-term debt; the last-5-year mean is 16.4% (e.g. uncapitalized leases, rentals).

Quick Ratio is 1.2 but M* no longer has an analyst assigned. Value Line gives an A+ grade for Financial Strength.

With regard to sales growth:

• YF projects YOY 6.1% contraction and 7.6% growth for ’24 and ’25, respectively (based on 12 analysts).
• Zacks projects YOY 5.7% contraction and 6.9% growth for ’24 and ’25, respectively (6 analysts).
• Value Line projects 5.9% annualized growth from ’23-’28.
• CFRA projects contraction of 10.2% YOY and 4.0% per year for ’24 and ’23-’25, respectively.
• M* offers a 2-year ACE of 0.8% annualized growth.

I am giving the long-term estimate a major haircut to 1.0% per year due to the negative short-term projections.

With regard to EPS growth:

• MarketWatch projects annualized growth of 7.2% and 10.2% for ’23-’25 and ’23-’26 (based on 14 analysts).
• Nasdaq.com projects growth of 32.2% YOY and 26.9% per year for ’25 and ’24-’26 (7/7/2 analysts for ’24/’25/’26).
• Seeking Alpha projects 4-year annualized growth of 4.2%.
• YF projects YOY 23.7% contraction (33.8% growth) for ’24 (’25) and 5-year annualized contraction of 1.3% (13).
• Zacks projects YOY 24.7% contraction (32.2% growth) for ’24 (’25) along with 5-year annualized growth of 4.2% (7).
• Value Line projects 10.9% annualized growth from ’23-’28.
• CFRA projects contraction of 20.1% YOY and 7.2% per year for ’24 and ’23-’25, respectively.

The YF estimate is a bit suspect being unchanged since my previous October study. I am keeping it, though, with my 2.0% annualized forecast toward the lower end of the long-term estimate range (mean of four: 4.5%). Initial value is ’23 EPS of $3.88/share rather than 2024 Q1 EPS of $3.34 (annualized).

My Forecast High P/E is 17.0. Over the past decade, high P/E ranges from 17.7 in ’19 to 26.3 in ’14 with a last-5-year mean of 21.8 and a last-5-year-mean average P/E of 17.3. I am below the range.

My Forecast Low P/E is 12.0. Over the past decade, low P/E ranges from 10.8 in ’22 to 18.4 in ’17 with a last-5-year mean of 12.8. I am forecasting near the bottom of the range [only ’22 and ’21 (11.4) are lower].

My Low Stock Price Forecast (LSPF) of $46.60 is default based on initial value given above. This is 28.4% less than the previous closing price and 23.7% less than the 52-week low.

Over the past decade, Payout Ratio (PR) ranges from 28.4% in ’21 to 50.4% in ’20 with a last-5-year mean of 37.7%. I am forecasting below the range at 28.0%.

These inputs land RHI in the HOLD zone with a U/D ratio of 0.4. Total Annualized Return (TAR) is 3.9%.

PAR (using Forecast Average—not High—P/E) is much lower than I seek for any size company at 1.0%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead. Even that falls far short of the risk-free rate.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 10 studies (mine excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 2.9%, 5.9%, 20.8, 12.5, and 36.2%. I am lower across the board. Value Line’s projected average annual P/E of 20.0 is higher than MS (16.7) and higher than mine (14.5).

MS high / low EPS are $5.08 / $3.34 versus my $4.28 / $3.88 (per share). My high EPS is less due to a lower growth rate. Value Line projects $6.50/share: greatest high EPS of all.

MS LSPF of $53.00 implies a Forecast Low P/E of 15.9: higher than the above-stated 12.5. MS LSPF is 27.0% greater than the default $3.34/share * 12.5 = $41.75 thereby resulting in more aggressive zoning. MS LSPF is also 13.7% greater than mine.

MOS in this study is solid. My TAR (over 15.0% preferred) is much less than the 9.7% from MS. Although this carries decreased impact due to the small MS sample size, I use a very low growth rate, a conservative forecast P/E range, and a low initial value (down 35.7% YOY).

It’s the poor visual inspection mentioned near the top that really necessitates a healthy MOS. 5-year and 10-year EPS R^2 are 0.16 and 0.61: not very good for either.

With regard to valuation, PEG is 5.3 and 9.5 per Zacks and my projected P/E, respectively: both significantly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is fair at 1.1.

U/D has RHI a Buy under $53/share. The stock needs to approach $36 in order to meet the BI TAR criterion given a forecast high price ~$73.

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