A Look at Staffing Services in a Recuperating Employment Market

Damian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Note: This article has been amended to better reflect Monster's business model.

The Internet has changed almost everything, including how we watch movies to how we choose a restaurant. Job searching and head-hunting have been no exception. Nowadays, the Internet is the most practical way to look for a job or an employee, though other channels do remain strong.

ManpowerGroup (NYSE: MAN), Robert Half International (NYSE: RHI) and, although not technically a staffing company, Monster Worldwide (NYSE: MWW) are three employment services companies that have, in one way or another, capitalized on the opportunities provided by technological advances. The companies now seem poised to benefit from a recuperating employment market in developed countries and from ameliorating work conditions in emerging economies. Let’s take a closer look at them in order to determine whether they are good investment opportunities.

The employment Monster

Monster Worldwide is the leading company in the online employment and recruitment industry. As the employment market recuperates, the company should benefit from its scale and its wide product portfolio, allowing it to capture market share from its peers. Moreover, a restructuring plan has been set in motion to divest underperforming market segments like Brazil, Mexico and Turkey. This will shift the company's focus towards the recovering U.S. market. By centering its attention on its core business, the management intends to improve the company's cost structure and boost both profitability and cash flow.

Going forward, customer base diversification is expected to be one of Monster's main growth catalysts. The company usually targeted the large-scale enterprise market. Now, however, it is concentrating its efforts on penetrating the small-to-medium sized business segment and particularly those operating in local and regional markets. Several agreements with media and publishing companies and acquisitions will increase its exposure to these markets. (Zacks) Other investments aimed at widening Monster´s product offering should also prove beneficial.

Trading at 10 times its earnings, at about a 78% discount to the industry average and close to the lower end of its historical range, the company has plenty of upside potential. Offering compelling earnings-per-share growth prospects and a strong brand name, this company's stock looks like a BUY and hold case to me.

Staffing the world

ManpowerGroup provides employment and consulting services in 80 countries. A strong brand name and a wide product offering are two of the firm’s main advantages over its peers. By leveraging its vast network of employers and candidates, it has been able to grow from a staffing company to a full-range human resources management company.

ManpowerGroup's global footprint results particularly attractive for multinationals, which can centralize all of their staffing needs through the company. As more companies become transnational, its services should only experience a higher demand. The management has proven successful in creating partnerships with local staffing firms, helping it penetrate new markets without the need for hefty capital investments. Going forward, this strategy should be useful as the company targets the underpenetrated Italian, German, Nordic, Indian and Chinese markets.

Another one of the main growth catalysts for the company in the long-term should rest in its U.S. professional staffing business. This business is expected to grow faster than most other sectors.

Trading at 24 times its earnings and at about half the industry average valuation, ManpowerGroup holds a moated business model, one of the strongest brand names in the industry and a history of above average revenue growth. I'd recommend BUYING and holding on to this company's stock, especially as it will pay out 1.68% of its current stock price in the form of dividends.

Robert Half, staffing half the world

Robert Half International is the world´s largest specialized staffing and risk consulting services provider, operating in North and South America, Europe, Asia and Australia. The rising demand for professionals both in the U.S. and overseas has been one of the company's main growth drivers over the last few years. As the economy recuperates, this demand should only rise and Robert Half is particularly well positioned to benefit from this trend.

Although the temporary staffing segment is currently the strongest in terms of revenues, its margins are quite low. The recouping economy should increase the number of permanent employees hired versus temps, providing further tailwinds for the company.

The acquisition of Protiviti, a consulting firm, last year is also expected to increasingly contribute to revenue over the years to come. Moreover, by creating temporary workforce demand for consulting projects, Protiviti and Robert Half´s temp segment could benefit from strong synergies.

With a strong cash position, the management can and has rewarded shareholders through both share repurchases and a 1.96% dividend yield. This is only bound to increase going forward. “The company's commitment toward enhancing shareholder return reflects its free cash flow generating capability, sound liquidity position and well-defined future prospects.” (Zacks) Trading at 21 times its earnings but at less than half the industry average valuation, this company has a stock to BUY and hold.

Bottom line

As the employment market recuperates and new companies develop in emerging countries, staffing solutions and various job search services will be increasingly required. It has become more convenient for companies to outsource these processes, providing plenty of upside potential for the above companies. Consider adding them to your long-term portfolio, as there is plenty of room for appreciation. You can then sit back and enjoy the dividends from ManpowerGroup and Robert Half.

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Damian Illia has no position in any stocks mentioned. The Motley Fool recommends Robert Half International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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