Robert Half International RHI is an interesting stock to look at because its earnings and –more importantly- its share price drivers and prospects tend to reflect macro-economic concerns rather micro. It is a very cyclical stock. Analysts waste a lot of time trying to analyze the finer detail of Robert Half’s numbers and execution, but in reality it is the employment environment that governs its prospects.
Having noted that, it is worth noting that this doesn’t preclude individual company analysis of Robert Half. Rather, it means that an analysis should focus on the macro-economic direction (employment gains) and then appraise prospects based on the performance of their execution. For example, the following data is a good example of how cyclical this stock is.
The first column represents a metric to analyze the turning point in Robert Half fortunes. The quarterly revenue is divided by the rolling yearly revenue. The second column is the quarterly Gross Margin. The third is the private non-farm payroll net 3-month, taken from the Bureau of Labor Statistics.
The green number represent bottoms or troughs, whereby the direction afterwards is upwards. Similarly, the red numbers are tops or peaks.
Quarter Rev as percentage of Rolling Year Revenue | Quarter GM | Private Non-Farm Payrolls 3 Month Net | |
2000 | 0.00% | 42.83% | 649 |
q2 | 0.00% | 43.13% | 311 |
q3 | 0.00% | 42.92% | 440 |
q4 | 26.15% | 43.11% | 289 |
2001 | 25.82% | 43.24% | -126 |
q2 | 23.44% | 42.04% | -645 |
q3 | 21.71% | 40.13% | -634 |
q4 | 20.82% | 39.61% | -908 |
2002 | 21.28% | 39.47% | -379 |
q2 | 23.34% | 38.70% | -165 |
q3 | 25.03% | 36.18% | -165 |
q4 | 25.12% | 35.79% | -64 |
2003 | 24.78% | 35.85% | -309 |
q2 | 25.16% | 36.73% | -53 |
q3 | 25.88% | 37.34% | 188 |
q4 | 26.21% | 37.21% | 303 |
2004 | 27.59% | 37.74% | 489 |
q2 | 28.73% | 39.71% | 628 |
q3 | 29.03% | 39.87% | 294 |
q4 | 28.19% | 40.21% | 489 |
2005 | 26.80% | 40.75% | 471 |
q2 | 26.79% | 41.18% | 752 |
q3 | 27.03% | 41.06% | 545 |
q4 | 26.50% | 41.47% | 542 |
2006 | 26.87% | 41.66% | 869 |
q2 | 26.70% | 42.57% | 262 |
q3 | 26.76% | 42.06% | 336 |
q4 | 26.42% | 42.55% | 384 |
2007 | 26.33% | 42.00% | 478 |
q2 | 26.52% | 42.88% | 234 |
q3 | 26.29% | 42.48% | -108 |
q4 | 26.26% | 42.92% | 185 |
2008 | 25.68% | 41.68% | -155 |
q2 | 25.25% | 42.19% | -644 |
q3 | 24.03% | 41.65% | -1060 |
q4 | 21.51% | 40.65% | -1948 |
2009 | 19.61% | 35.67% | -2257 |
q2 | 20.14% | 35.34% | -1435 |
q3 | 22.07% | 36.70% | -698 |
q4 | 24.28% | 37.77% | -270 |
2010 | 24.98% | 36.51% | 236 |
q2 | 25.90% | 37.69% | 353 |
q3 | 26.70% | 37.82% | 372 |
Source: Robert Half,Bureau of Labor Studies, Earnings View
The key is to note how closely correlated Robert Half's cyclical fortunes trough with a bottom in private non-farm payrolls. However, it is worth noting that Gross Margins continued to rise, right up til the employment market turned with the recession in 2008. In fact Robert Half's share price did well (although there was some stock specific weakness in mid 2006) right up until the start of 2007.
All of which indicates that there is probably more to run from Robert Half in terms of Gross Margins, share price and profits. However, it appears that Robert Half's share price is far more dictated by the direction of employment gains/losses than an underlying current profitably. If you think the economy will continue to improve in 2011 and payroll gains will remain positive than RHI has further to run.
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