So looking at the human resource/business services sector I'll put my opinion on the current valuations of Manpower. I picked Manpower because its valuation were the most out of line with its peer group.
With the recent business outlook survey, not all markets are created equally. I still believe that their larger markets will continue to face downside risk as employment remains choppy. A large portion of their revenue comes from the European market. The US market which is about 10% of Manpower's revenue's will be the first movers in the up tick in hiring. Still conditions in the US remain flat at best for hiring, with no robust outlook for the 4th quarter. Hiring continues to be muted till firms and small businesses find that there is a solid ground for this recovery. This recovery has been mostly stimulus funded. Private businesses which make the brunt of the jobs in the United States continue to face credit limitations and conditions that are less to their liking as the yesteryear. On a macro scale jobs continue to be scare. With an average of six applicants for every free opening, this also challenges the notion that temporary jobs are coming back with a vengeance. Temporary positions also continue to be scare and at a reduced hourly workload. With the average work week of permanent employees at 33.1 hours per week, what would the average temp worker get? These are some serious structural issues that everyone needs to ponder. Many of these jobs that were lost in this recession will not come back. And many workers will need to retrain and possess additional skills to find work.
The stock trades at a lofty valuation. At seventy-one times earnings, while the industry is a negative forty-six, and the S&P trading at eighteen times earnings, Manpower is very expensive compared to its industrial peers and to the S&P. While having very poor earnings and net income growth for the past two years. Unless you feel that valuations at this point merits the lofty valuations then you may look at taking a stake, however at its current valuations there are many other companies that offer significantly more upside and more consistent growth.
Some have said that they have changed the way they value MAN to Price to Book which places MAN at 1.6, while the industry at 2.62, and the S&P at 2.1. This looks historically cheaper then its average, however you also have to take into account how depressed Manpower's business is compared to historical levels. Unemployment around the world still continues to remain at elevated levels. Either way MAN is nearing the top if not the top of their valuations.
Book value is about thirty-two plus dollars a share. While intrinsic value is about forty-two dollars. Either way you are paying a significant premium compared to its peers. Earnings and growth usually lead to price appreciation in shares. Earnings and net income has continued to decline for this past year at alarming levels. At its current valuation you can make the case that MAN is overvalued.
Debt is another issue to be on the side of caution. Manpower has over 873+ million in debt. Manpower also has over 1.1 billion in cash. This all seems well and good, however if there is a protracted decline in their revenue, and net income this cash will continue to face pressure. In this environment there are plenty of companies that are operating at zero to minimal debt trading at much less of a premium compared to the market and its peer group. This includes many technology names with faster growth then say the highly competitive human resources sector. Technology will be the driver of innovation and expansion going forward, either through increases in demand, or through cost cutting. Hiring will remain flat or a tepid bounce from its bottom.
Please do your due diligence regarding your own research on MAN. The information that I provide is just a starter to your own research. The information is out there, and I am just providing a stepping stone for this research. It never hurts to research the holdings that you hold to make sound and educated decisions for long term appreciation.
No comments:
Post a Comment