Friday, July 31, 2009

Manpower debt rating under review

"NEW YORK (AP) -- Moody's Investors Service on Monday placed the Baa2 long-term debt rating of Manpower Inc. under review for possible downgrade, saying the staffing company's credit could be weakened by declining profitability and revenue.

Moody's rating outlook on Manpower has been negative since March 9.

Moody's said it expects "sharp year-over-year declines in revenue and profitability during the remainder of 2009, leading to substantial erosion" in Manpower's leverage and credit strength.

In addition, Moody's said it expects labor market conditions will remain difficult in key markets in Western Europe in 2010.

"Accordingly, a rapid rebound in demand for temporary and permanent recruitment services is unlikely in the near term," the ratings agency said.

Manpower did not immediately return a call seeking comment."

I am not surprised at this. Manpower has been trying to expand globally, and has a very large headcount to content with. I've been voicing my opinion that they do need to reduce headcount amid the large decline in their revenue. On a price to sales valuation they seem cheap, however as the revenue continues to decline this will begin to change.

  • They still have valuation of over 65x earnings. vs. 26.27x for its peer group.
  • Price to Projected Earnings are at 38.32 vs. 65.99 for the peer group. Manpower is trading at a heavy preminum compared to its peers.
  • Earnings growth is -86.50% vs. peers at -53.30%. Again, man has been getting slammed hard on its decline in revenue.
  • Sales growth is -20.33 vs. -0.81 for its peers. With both earnings and sales at such a steep decline it makes one wonder why this is trading at such a premium to its peers.
    And a very high PEG ratio.

    This debt matter doesn't help their cause as they will need to micro manage their cash flow to par down this debt. Although, it is not a near term cause for concern, it doesn't help their valuation to be carrying such high levels of debt (13.2% long term debt), amid their declining revenue.

    I would avoid MAN at this time, and take a look at RHI if you are worried about Manpower's debt level. RHI has under two million dollars in debt and holds over three hundred sixty million in cash. Until Manpower takes a very proactive approach to slashing headcount, and force retirement on a global scale, Manpower continues to look overvalued to its peers.

According to some price projections low 40's should be a preminum to it's high 20's to low 30's book value.

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