Renewable Projects And Labor Shortages Will Drive Long-Term Staffing Demand

Catalysts

About TrueBlue

TrueBlue provides technology enabled specialized staffing and workforce management solutions across on demand, managed and recruitment process outsourcing offerings.

What are the underlying business or industry changes driving this perspective?

• Accelerating demand in energy and renewable projects, where TrueBlue has already more than doubled vertical revenue, may support ongoing top line growth. Scale efficiencies in these lower margin programs may improve overall segment profit.
• Persistent structural labor shortages in skilled trades and commercial drivers, combined with TrueBlue’s reported fifth consecutive quarter of double digit driver growth, may position the company to gain share and potentially lift consolidated revenue and operating margins if transportation volumes recover.
• Ongoing digital adoption in staffing, including expansion of TrueBlue’s proprietary JobStack and pricing automation, is increasing client and worker engagement. These trends may enhance revenue per salesperson and support EBITDA margin expansion through lower servicing costs.
• Long term growth in health care, engineering and technology hiring, reinforced by the HSP acquisition and expanding RPO engagements, is shifting mix toward higher value professional roles. This shift is expected by some market participants to support comparatively faster revenue growth and higher net margins if hiring volumes normalize.
• Cost discipline, real estate rationalization and a simplified fixed cost base that reportedly delivered SG&A down 8 percent on double digit revenue growth may provide operating leverage that could translate even modest industry recovery into comparatively stronger earnings and cash flow growth.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming TrueBlue's revenue will grow by 4.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.8% today to 2.4% in 3 years time.
• Analysts expect earnings to reach $42.3 million (and earnings per share of $1.49) by about December 2028, up from $-28.1 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 7.9x on those 2028 earnings, up from -5.2x today. This future PE is lower than the current PE for the US Professional Services industry at 25.0x.
• Analysts expect the number of shares outstanding to grow by 0.78% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.71%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The company is still reporting a net loss and only modest adjusted profitability despite double digit revenue growth. If gross margin pressure from lower margin energy and renewable work persists or deepens, long-term earnings and net margins could remain structurally weaker than expected and limit share price appreciation.
• Secular tailwinds in energy, health care and skilled roles may not translate into broad based demand if customer sentiment remains cautious and hiring volumes stay subdued. This would constrain the anticipated recovery in higher value placements and slow revenue and earnings growth.
• Ongoing pricing pressure from cost conscious clients and intense competition from smaller staffing firms, combined with the introduction of digital tools like in app price estimates, could drive more aggressive discounting over time and compress gross margins and EBITDA margins.
• Heavy reliance on structural labor shortages in commercial drivers and skilled trades as a growth engine may be undermined if transportation volumes or industrial activity remain weak for longer. This could limit the ability to leverage the expanded sales force and reduce segment revenue and overall operating leverage.
• Regulatory and immigration related uncertainties, including ICE activity and evolving compliance requirements, may continue to disrupt worker availability and increase absenteeism in key regions. This could drive higher operating complexity and costs that weigh on revenue stability and net margins.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $8.5 for TrueBlue 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 $10.0, and the most bearish reporting a price target of just $7.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $1.8 billion, earnings will come to $42.3 million, and it would be trading on a PE ratio of 7.9x, assuming you use a discount rate of 8.7%.
  
• Given the current share price of $4.92, the analyst price target of $8.5 is 42.1% 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.