Ahead of the U.S. employment report and unemployment rates due on Friday, April 7, related numbers are indicating a slowing pace of employment growth. This might not bode well for staffing services stocks.

However, this could be an opportunity for bargain hunters to back up their trucks and capitalize on gains during the upcycle with Heidrick & Struggles International, Inc. (HSII), Resources Connection, Inc. (RGP), and DHI Group, Inc. (DHX).

The number of job openings fell in February to below 10 million for the first time in nearly two years. Although the 9.9 million job openings have outnumbered the 5.9 million people currently seeking work in a tight labor market, this does indicate a slowdown from 10.6 million openings in January.

On similar lines, the numbers released by payroll processing company ADP have revealed that private sector hiring rose by just 145,000 in March, down from 261,000 in February and also falling short of the estimate of 210,000.

The above numbers might be indicative of the cumulative effect of the macroeconomic slowdown caused by aggressive interest-rate hikes by the Federal Reserve and are ominous ahead of the release of the employment report due on Friday.

While this lull might hurt the near-term prospects of staffing service companies whose stocks have already begun responding with pullbacks, an inevitable turnaround aided by a likely pause in the interest rate hikes by the Central Bank could reward investors who are willing to load up on these attractively valued businesses.

In view of the above context, let’s take a closer look at the featured stocks.

Heidrick & Struggles International, Inc. (HSII)

HSII is an advisory firm that offers executive search, consulting, and on-demand talent services to businesses worldwide. The company’s offerings include Executive Search, On-Demand Talent, and Heidrick Consulting.

On March 21, HSII announced that its agreement with businessfourzero to acquire the London-headquartered consultancy specializing in developing and implementing purpose-driven change.

This acquisition brings specialized capabilities in developing and implementing purpose-driven strategies to companies undergoing major business transformations, thereby deepening HSII’s culture and organization solutions suite.

On February 1, HSII announced that it had closed the acquisition of Atreus, one of Germany’s leading providers of executive interim management. Atreus and HSII’s wholly-owned, U.S.-based Business Talent Group (BTG), acquired in 2021, would advance long-term growth and diversification strategy to capture accelerating global opportunities in the on-demand talent market.

On January 6, HSII announced the opening an office in Bogota, Colombia, to support enhanced operations for clients in Colombia, Ecuador, Panama, and Central America.

Despite the impact of negative interest-rate fluctuations, HSII’s total revenue for the fiscal year that ended December 31, 2022, surpassed the billion-dollar milestone in 2021 by 7.4% year-over-year to come in at $1.08 billion. During the same period, the company’s operating income increased 14.2% year-over-year to $112.27 million.

As a result, HSII’s adjusted net income for the fiscal came in at $79.17 million, or $3.86 per share. The company’s total assets stood at $1.18 billion as of December 31, 2022, compared to $1.11 billion as of December 31, 2021.

HSII’s trailing-12-month net income margin of 7.40% is 14% above the industry average of 6.49%. Likewise, its trailing-12-month ROCE, ROTC, and ROTA of 21.29%, 15.35%, and 6.76% compare favorably to the respective industry averages of 13.83%, 6.96%, and 5.18%.

HSII’s revenue and EPS for the fiscal year 2023 are expected to come in at $983.25 million and $2.72, respectively. Both metrics are expected to increase by 4.9% and 10.9% during the next fiscal to come in at $1.03 billion and $3.01 per share, respectively. Moreover, the stock has an impressive earnings surprise history of surpassing consensus EPS estimates in three of the trailing four fiscals.

The stock has dipped 9.1% over the past nine months to close the last trading session at $28.74.

HSII’s forward P/E multiple of 10.58 is 34.1% below the industry average of 16.05. Similarly, its forward EV/Sales and EV/EBITDA multiples of 0.03 and 0.32 compare favorably with the respective industry averages of 1.56 and 10.22.

HSII has an overall rating of B, which equates to a Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

HSII has an A grade for Value and a B for Quality. It is ranked #3 of 21 stocks in the A-rated Outsourcing – Staffing Services industry.

Click here for additional ratings for HSII’s Growth, Sentiment, Momentum, and Stability.

Resources Connection, Inc. (RGP)

As a global consulting company, RGP operates through three segments: Resources Global Professionals (RGP); Taskforce; and Sitrick.

On March 16, RGP paid its quarterly dividend of $0.14 per share. The company pays $0.56 annually as dividends. This translates to a yield of 3.66% at the current price, comparable to the 4-year average dividend yield of 3.72%.

RGP’s dividend payouts have grown at a 3.6% CAGR for the past five years.

For nine months of the fiscal year that ended February 25, 2023, RGP’s revenue increased 0.5% year-over-year to $591.19 million, while its gross profit increased 4.6% year-over-year to $237.42 million. During the same period, the company’s adjusted EBITDA increased 10.3% year-over-year to $76.96 million, while the company maintained its adjusted EPS at $1.55.

RGP’s trailing-12-month gross profit margin of 40.47% is 38% above the industry average of 29.33%, while its trailing-12-month net income margin of 7.81% is 20.3% above the industry average of 6.49%. Moreover, its trailing-12-month ROCE, ROTC, and ROTA also compare favorably with the respective industry averages of 13.83%, 6.96%, and 5.18%.

RGP has an impressive earnings surprise history of surpassing consensus EPS estimates in each of the trailing four quarters. The stock has dipped 9.2% over the past year to close the last trading session at $15.29.

In terms of forward P/E, it is trading at 7.92x, 50.6% lower than the industry average of 16.05x. Likewise, its forward EV/EBITDA and EV/Sales multiples of 5 and 0.60 also compare favorably to the respective industry averages of 1.56 and 10.22.

RGP’s POWR Ratings reflect its steady outlook. It has an overall rating of B, which equates to a Buy in our proprietary rating system. It has an A grade for Value and a B for Quality.

RGP is ranked #2 of 21 stocks in the A-rated Outsourcing – Staffing Services industry.

Click here to see the other ratings of RGP for Growth, Sentiment, Momentum, and Stability.

DHI Group, Inc. (DHX)

DHX provides software products, online tools, and services which enable recruiters and hiring managers in the United States to search, match and connect with skilled technologists in specialized fields. The company’s brands include Dice and ClearanceJobs.

On February 9, DHX announced that its board of directors authorized a new stock repurchase program that permits the repurchase of up to $10 million of its common stock. This comes as the company’s previous $15 million stock repurchase program, which was initially approved in February 2022, has been substantially utilized with the purchase of approximately 2.6 million shares.

In addition to demonstrating the confidence of DHX’s management in the company’s prospects, the consistent repurchase of shares also increases the intrinsic value of the holdings of existing shareholders.

During the fiscal year ended December 31, 2022, DHX’s revenue increased by 24.8% year-over-year to $149.68 million, while its adjusted EBITDA increased by 18.3% year-over-year to $30.95 million. The company’s net income for the fiscal year came in at $4.18 million, compared to a net loss of $29.74 million during the previous fiscal year.

As a result, DHX’s adjusted EPS for the fiscal year increased by 150% year-over-year to $0.05.

DHX’s trailing-12-month gross profit margin of 88.24% is 75.7% above the industry average of 50.22%. Also, its trailing-12-month ROCE and ROTA of 3.75% and 1.84% compare favorably to the respective industry averages of 2.94% and 1.32%.

Analysts expect DHX’s revenue for the fiscal 2023 second quarter ending June 30 to increase 9.8% year-over-year to $40.70 million, while its EPS is expected to come in at $0.01. For the current fiscal year, the company’s revenue is expected to increase 10.1% year-over-year to $164.80 million, while its EPS is expected to come in at $0.05.

Moreover, DHX has surpassed consensus EPS estimates in three of the trailing four quarters.

DHX’s stock has dipped 12.8% over the past month to close the last trading session at $3.75.

Its forward EV/EBITDA and EV/Sales multiples of 6.01 and 1.25 are 29.3% and 31.8% lower than the respective industry averages of 8.49 and 1.83. Likewise, its forward Price/Sales multiple of 1.04 compares favorably with the industry average of 1.22.

DHX has an overall rating of B, which translates to a Buy in our POWR Ratings system. It has an A grade for Value and B for Sentiment and Quality.

Unsurprisingly, DHX occupies the top spot in the same industry. Click here for additional POWR Ratings for Growth, Momentum, and Stability for DHX.

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HSII shares were trading at $28.79 per share on Thursday afternoon, up $0.05 (+0.17%). Year-to-date, HSII has gained 3.40%, versus a 7.21% rise in the benchmark S&P 500 index during the same period.

About the Author: Santanu Roy

Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities. More...

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