Cost Savings And Technology Will Open Future International Opportunities

Key Takeaways

• Restructuring and technological advancements are set to enhance profitability, improve margins, and increase revenue productivity for Robert Half.
  
• Protiviti's robust pipeline and European growth prospects indicate strong potential for future revenue expansion amid economic stabilization.
  
• Declining revenues, reduced earnings, and economic uncertainty pose risks to Robert Half's revenue growth, profitability, and investor confidence.

Catalysts

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

• Robert Half's restructuring efforts, which include cost reductions at corporate services and administrative positions, are anticipated to yield annual savings of $80 million. These actions should improve profitability and net margins starting in the second quarter of 2025.
  
• The company is experiencing an increase in demand for high-skilled roles, particularly in technology, which have higher bill rates. This shift could lead to increased revenue per engagement and enhanced gross margins.
  
• Protiviti's consistent pipeline strength, despite current economic uncertainties, suggests future growth potential. Protiviti's ability to convert pipeline opportunities into active projects should drive revenue growth and improved margins as economic conditions stabilize.
  
• The expanded use of contract professionals and advancements in technology, including AI to optimize resource allocation, is expected to enhance revenue productivity and reduce costs, thereby improving net margins and earnings.
  
• The prospect of infrastructure and defense spending in Europe, particularly in Germany, presents new opportunities for growth in the international segment, potentially increasing revenues and improving overall financial performance.

Robert Half Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Robert Half's revenue will grow by 3.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.6% today to 6.6% in 3 years time.
• Analysts expect earnings to reach $411.5 million (and earnings per share of $4.06) by about April 2028, up from $205.2 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $481 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.0x 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 20.7x.
• Analysts expect the number of shares outstanding to decline by 2.43% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.49%, as per the Simply Wall St company report.

Robert Half Future Earnings Per Share Growth

Risks

• Global enterprise revenues were down 8% on a reported basis and 6% on an as-adjusted basis compared to the prior year, indicating potential challenges in maintaining or growing revenue.
  
• The first quarter saw a significant decrease in net income per share, dropping from $0.61 to $0.17, reflecting possible risks to earnings and profitability.
  
• Economic uncertainty over U.S. trade and other policy developments has led to moderated business confidence levels, elongating decision cycles and subduing hiring activity, which could negatively impact revenue and growth.
  
• Cash flow used in operations during the quarter was negative at $59 million, largely due to the timing of annual bonus payments and SaaS subscription renewals, posing risks to cash reserves and liquidity.
  
• The company's return on invested capital was relatively low at 5%, which might indicate concerns about the efficiency of capital use in generating profitability and could impact investor confidence.

Valuation

• The analysts have a consensus price target of $51.25 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 $80.0, and the most bearish reporting a price target of just $35.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.2 billion, earnings will come to $411.5 million, and it would be trading on a PE ratio of 14.0x, assuming you use a discount rate of 6.5%.
  
• Given the current share price of $44.26, the analyst price target of $51.25 is 13.6% 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.