RBS analyst Bob Janjuah states his views

RBS analyst Bob Janjuah was quite temped in his views of the global growth story.

Bob Janjuah states that a massive turnaround in corporate behaviour in leverage, capex, investment, hiring and spending binge is extremely unlike for now and for the rest of this year.

This is a pretty honest assessment after all the rose colored glasses calls of a buoy hiring landscape for the staffing firms. However, premenant placement has barely budged from historical levels, and consumers continue to be selective on their purchasing behavior.

The U.S. also revised its GDP downwards to 3.0% rather than bullish estimates from firms such as Goldman Sachs of 3.7%. Besides that unemployment claims also missed estimates.

TriNet Human Capital Index Employment Unemployment

TriNet released their latest monthly reading regarding employment today. Even as their are readings of green shoots in the economy, TriNet survey speaks otherwise. Their latest reading points to flat employment, rather than growth.

Source: TriNet

Innovative small technology and service companies slowed hiring against
broader U.S. averages during March, and while layoffs rose slightly, they
remained well below last year´s highs. Net employment growth appeared flat in
March, which may indicate that companies are waiting for signals about the
broader business climate.

Kelly Services falls on comparative performance

"Stifel Nicolaus analyst James Janesky said in a client note that he views all staffing and employment-related stocks unfavorably "amid continued weakness in the employment market and (we) believe there is potential for our entire ... group to pull back from current levels following the sharp run-up from early-March lows."

"Analyst Ty Govatos of C.L. King & Associates said the stocks could rise twofold or more as business improves in the next two to three years, but he cautioned that his calculations do not include risks that could halt the stocks' climb.

Kelly Services Inc., Manpower Inc. and other staffing companies will likely not perform as well as other companies, though they could still climb between 70 percent and 115 percent, he said in a client note."

Source: AP

Basically, I've been harping on the point that these employment, human resource stocks have been mostly overvalued. With such declines to their revenue and net income compared to the boom present in 2007, there is no way these companies such as Kelly Services and Manpower deserve such multiples.

The multiples that these stocks are trading at are mind blowing considering their businesses have faced tremendous downwards spiral since the 2007 boom.

Sales growth, earnings, operating margins have continued to decline and have only stabilized at a bottom. Rather then drive earnings the recent run up has been purely on speculation that we are entering another growth phase. With governmental debt at an all time high, and growth primary coming from government stimulus spending rather then from the private sector, consumers will continue to feel the brunt of this downturn.

End result is low levels of manufacturing. Tepid demand.

Manpower Upgrade?

So the Standard and Poor's recently upgraded Manpower to a HOLD from SELL due to a change in how they value the company. Instead of using P/E as a way to value the company they are using P/S instead.

- Yes, Manpower generates massive revenue due to its scale in the global markets. However, quarter on quarter on yearly comps they are performing horribly. There have been small up ticks in employment. But nothing to say that we are out of the woods in terms of employment.

- Another thing to take note. There is not a lot of barrier to entree to recruiting. In each market there are competitive players that are via'ing for that commission fee. Some will under bid in order to win that contract. This causes mischief in this already low margin market.

- Sales from the prior quarter was down dramatically. Unless they continue to cut cost, and reduce overhead through reduced hours, continued cuts in admin, I foresee Manpower's numbers to be fairly muted in the markets that they continued to be weak in. Earnings will be announced on Thursday and I like many will look forward to this. Adecco has slashed a couple hundred from its payroll. I have not seen this from Manpower in a press release. It may want to do that to retain its very expensive valuation.