How solid is MAN’s value proposition?

January 8, 2019

How solid is MAN’s value proposition?

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 or so, the question has revolved around whether we’re nearing the Fed’s target for “full employment,” or are we already there? And will that force the Fed to adjust its policy about interest rates?

Until the market finally dropped below standard correction levels beginning in December, most analysts were forecasting that the market would just keep pushing further into the longest period of economic expansion that in recorded U.S. history. That generally means that U.S. business is healthy, profitable, and growing. Full employment means that it’s harder for companies to find talent to fill job openings. 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 could 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% below the 52-week high it reached in January of 2018 at around $137, and has a very compelling argument to suggest that while the stock may not test that high over the next couple of years, its upside is nonetheless well above its current price. 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 $4.2 billion.

  • Earnings and Sales Growth: Over the last twelve months, earnings  grew more than 21% while revenues declined slightly, by -.84%. In the last quarter, earnings grew by a little over 5%, while sales declined about -4%. MAN operates with a very narrow margin profile, with Net Income running at only about 2.76% of Revenues over the last twelve months, but increasing slightly over the last quarter to 2.91%.
  • Free Cash Flow: MAN’s free cash flow is healthy, at almost $382 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. On a Free Cash Flow Yield basis, it translates to a relatively healthy 9.2%.
  • Debt to Equity: MAN has a debt/equity ratio of .37. This is a conservative number that is manageable despite its increase from the second quarter of 2018 at .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 3% 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 $43.30 and translates to a Price/Book ratio of 1.55 at the stock’s current price. Their historical average Price/Book ratio is 2.26. That suggests the stock is trading right now at a discount of nearly 32%, which puts the stock’s long-term target at a little above $97 per share. Additionally, the stock’s historical Price/Cash Flow ratio puts the stock’s long-term target price at around $112. No matter which target you prefer to work with, MAN looks like a stock that offers an excellent bargain opportunity.

Technical Profile

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 2018 to the pivot low, and 52-week low it reached at the end of the year; it also informs the Fibonacci trend retracement lines shown on the right side of the chart. The stock has been under considerable pressure as the market extended deeper into correction territory, but appears to have strong support in the $61 price area, with near-term resistance around $73 per share. The stock would have to push above the resistance marked by the 38.2% retracement line at $90 per share to mark an actual bullish reversal of the stock’s long-term downward trend, but a break above pivot resistance at about $78 should provide a basis for a useful near to intermediate-term upward trend.
  • Near-term Keys: If you’re looking for a short-term bullish trade, and you’re willing to be aggressive, you could use the stock’s current rally off of pivot low support as a basis for a new bullish trade using call options or the stock itself, with a short-term target around resistance between $73 and $78 per share. A break below current support, to around $61 could see the stock drop into the mid-$50 range before it finds its next support level, and so that could be an interesting basis for a bearish trade using put options or by shorting the stock. If you like the stock’s value proposition, and you are willing to work with a long-term timeframe, the stock’s current price, healthy dividend and and solid fundamental profile all provide a very solid basis for an interesting value opportunity.