Over the last several years, one of the biggest benchmarks the Fed has used to evaluate the need to raise, lower or maintain their interest rate policy has been the employment rate. Every month, the market seems to hold its breath as a new set of unemployment and salary data is made available and everybody gets to wonder what the information means for the current economic climate and, therefore for interest rates. It seems like for the last year, the question has revolved around whether we’re nearing the Fed’s target for “full employment,” or are we perhaps already there? And will that force the Fed to adjust its policy about interest rates?
We’re well into the ninth year of an economic expansion that is unprecedented in recorded U.S. history. That generally means that U.S. business is healthy, profitable, and growing. That generally also means that there are plentiful jobs to be hand for anybody that might be looking for work, or possibly for a new, better opportunity. That also means that businesses that offer services that can help match job talent with workforce needs, on either a temporary or long-term basis, often do well. And that’s where today’s stock comes into play. ManpowerGroup Inc. (MAN) is one of the largest providers of workforce solutions and services, with operations that span the globe. Most economic forecasts, including those coming from the Fed, seem to indicate that employment growth should remain strong, with demand high in particular for talent in highly skilled technical and professional occupations. That supports the idea that demand for staffing services such as those provided by MAN should remain healthy.
MAN is also a stock with an excellent fundamental profile by most measurements, and value proposition that has been greatly improved by the stock’s poor performance year to date. The stock is currently more than $50, or almost 37% below the 52-week high it reached in January of this year at around $137, and has a pretty strong argument to suggest the stock could drive back to test that high. That creates a very interesting opportunity for value-oriented investors.
Fundamental and Value Profile
ManpowerGroup Inc. is a provider of workforce solutions and services. The Company’s segments include Americas, Southern Europe, Northern Europe, Asia Pacific Middle East (APME), Right Management and Corporate. The Company’s Americas segment includes operations in the United States and Other Americas. Its Southern Europe segment includes operations in France, Italy and Other Southern Europe. Its Northern Europe segment includes operations in the United Kingdom, the Nordics, Germany and the Netherlands. The Company’s APME operations provide a range of workforce solutions and services offered through Manpower, Experis and ManpowerGroup Solutions, including permanent, temporary and contract recruitment, assessment and selection, training and outsourcing. The Company’s Right Management segment provides talent and career management workforce solutions. The Company provides services under its Experis brand, particularly in the areas of information technology (IT), engineering and finance. MAN’s current market cap is $5.6 billion.
- Earnings and Sales Growth: Over the last twelve months, earnings grew more than 29% while revenue growth was also healthy, posting an increase of about 9.32%. In the last quarter, earnings great by over 36.5%, while sales posted a more modest gain of about 2.5%. Growing earnings faster than sales is difficult to do, and generally isn’t sustainable in the long-term; but it is also a positive mark of management’s ability to maximize the company’s business operations. MAN operates with a very narrow margin profile, with Net Income consistently running at only about 2.5% of Revenues over both a trailing twelve-month period as well as over the most recent quarter.
- Free Cash Flow: MAN’s free cash flow is healthy, at a bit over $385 million. This is a number that declined significantly from mid-2016, when it hit a high of about $660 million to a low of about $110 million in the first quarter of 2018 before improving to the current number.
- Debt to Equity: MAN has a debt/equity ratio of .37. This is a conservative number that is manageable despite its increase over the last quarter from .17. The company’s balance sheet indicates that it despite its narrow margin profile, it is sufficient to service its conservative level of debt, with healthy liquidity from cash and liquid assets to provide additional flexibility.
- Dividend: MAN pays an annual dividend of $2.02 per share, which translates to a yield of about 2.33% at the stock’s current price.
- Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for MAN is $43.26 and translates to a Price/Book ratio of 2.0 at the stock’s current price. Their historical average Price/Book ratio is 2.44. That suggests the stock is trading right now at a discount of nearly 22%, which puts the stock’s long-term target at a little above $105 per share. Additionally, the stock is currently trading more than 36% below its historical Price/Cash Flow ratio, which translates to a target price at around $117. No matter which target you prefer to work with, MAN looks like a stock that offers an excellent bargain opportunity.
Here’s a look at the stock’s latest technical chart.
- Current Price Action/Trends and Pivots: The red diagonal line measures the length of the stock’s downward trend from late January to its bottom in July of this year; it also informs the Fibonacci trend retracement lines shown on the right side of the chart. The stock has been following a mostly sideways trends since July, with support in the $82-$83 range and resistance around $94.50. The stock has been dropping off of that resistance level for the last several days and appears to be set to test its July support in the near-term. A break below $82 would mark a continuation and extension of the long-term downward trend, with the next most likely significant support around the $72 to $74 price range. The stock would need to break above its current resistance at about $94.50 to offer any kind of useful upward trend.
- Near-term Keys: If you’re looking for a short-term bullish trade, you can either wait until the stock breaks above $94.50, or look for a test of support around $82 followed by a short-term reversal higher. The stock’s current sideways trading range is pretty wide, and that could be attractive for a short-term bullish trade with call options or even for buying the stock with a quick turnaround in mind. Be mindful, however that if the stock drops below $82 per share, it will probably keep dropping even further. For a long-term value investor, the stock’s current price offers an excellent value, but you should also take any bullish position with the understanding that working with a long-term forecast around $105 also means being willing to give the stock room to drop even further below its current price in favor of that long-term opportunity.