Rising Business Optimism Will Increase Demand For Talent Solutions

Key Takeaways

• Increased U.S. business confidence and small business optimism are expected to drive hiring demand and boost staffing services revenues.
  
• Protiviti's growth in regulatory risk solutions and expanded contract use suggest strong consulting segment earnings and enhanced segment margins.
  
• Declining revenues, currency risks, and reduced margins might lower Robert Half's future profitability if not offset by sufficient revenue growth.

Catalysts

Provides talent solutions and business consulting services in the United States and internationally.

• Increased U.S. business confidence following recent elections is expected to drive future growth, improving hiring urgency and demand for talent solutions, which could positively impact revenues.
  
• Protiviti’s expected year-on-year revenue growth and strong pipeline, especially in regulatory risk and compliance solutions, suggests potential earnings growth in the consulting segment.
  
• The NFIB's large increase in small business optimism could indicate a forthcoming increase in small business hiring, leading to greater demand for staffing services and positively affecting revenue growth.
  
• Protiviti’s expanded use of contract professionals sourced through talent solutions, showing an 18% increase, suggests a synergistic effect that could enhance segment margins.
  
• Improving economic indicators like low unemployment and pent-up turnover due to dissatisfaction over remote work policies may spur labor market churn, increasing permanent placement revenues and positively impacting net margins.

Robert Half Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Robert Half's revenue will grow by 5.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.3% today to 7.0% in 3 years time.
• Analysts expect earnings to reach $478.2 million (and earnings per share of $4.99) by about April 2028, up from $251.6 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $430.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.0x on those 2028 earnings, down from 21.6x today. This future PE is lower than the current PE for the US Professional Services industry at 21.1x.
• Analysts expect the number of shares outstanding to decline by 2.65% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.63%, as per the Simply Wall St company report.

Robert Half Future Earnings Per Share Growth

Risks

• Global enterprise revenues for Robert Half in the fourth quarter of 2024 were down 6% from the previous year on a reported basis and 7% on an adjusted basis, potentially impacting future revenue growth.
  
• Talent solutions revenues experienced declines across both U.S. and non-U.S. markets, with U.S. talent solutions revenues down 11% and non-U.S. revenues down 14% year-over-year, which could negatively impact overall revenue and earnings.
  
• Currency exchange rate movements negatively affected reported year-over-year total revenues by $4 million in the fourth quarter, posing a risk to future revenue stability in international markets.
  
• Gross margins decreased within the contract talent solutions and overall talent solutions segments compared to the previous year, potentially affecting net margins and profitability.
  
• Protiviti's operating margins have seasonal declines due to annual staff promotions and compensation increases, which could temporarily lower net margins and earnings if revenue growth does not offset these increases.

Valuation

• The analysts have a consensus price target of $68.65 for Robert Half based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $90.0, and the most bearish reporting a price target of just $50.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.8 billion, earnings will come to $478.2 million, and it would be trading on a PE ratio of 16.0x, assuming you use a discount rate of 6.6%.
• Given the current share price of $54.0, the analyst price target of $68.65 is 21.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.