Enterprise Value = $5.113 billion
Operating Income = $856.8 million
EV/Operating Income = 5.96x
Price/Revenue = .21x
Earnings Yield = 13%
Debt/Equity = 40%
Manpower Group is a global staffing company. They provide recruiting services. They place a broad and diverse group of workers, from office staff to industrial workers. They also have a rights management unit, which provides consulting for workforce issues, such as advice to improve overall productivity.
This is not a “good business” with high returns on invested capital. Its earnings are driven by the cyclical nature of the global employment trends. However, Manpower has been in business for 75 years and has a strong global footprint, with a concentration in Europe. 13% of their revenue is from the United States, 13% is from Asia & the Middle East, and the remainder is from Europe. They have a particularly big focus in France, where 26% of their revenue comes from.
Manpower is in the most cyclical industry that there is: staffing. Their fortunes are dictated by the performance of demand for global employment. The company has performed well as unemployment rates fell in Europe and the United States. Employment in the European Union peaked at 11% in the middle of 2013 and is now down to 6.8%. In the United States, unemployment peaked at 10% and is now down to 4%.
The stock has been punished all year long. From its peak of $136 in January 2018, it is now down to $73.16.
In the quantitative sense, Manpower is a compelling bargain. The current P/E of 7.93 compares to Manpower’s 5-year average of 15.69 and an industry average of 24.14. Analysts don’t anticipate a significant decline in earnings. The stock currently has a forward P/E of 8.83. Additionally, the current EV/EBIT of 5.96 compares to a 5-year average of 9.27, which represents a 55% discount.
A bet on Manpower is obviously a bet on the US and Europe avoiding a recession in 2019. The economies of the United States and Europe are tied at the hip. A recession in the United States will likely coincide with a recession in Europe. There are indeed exceptions to this synergy, such as the 2011-13 period, when Europe languished while the recovery remained strong in the United States, but for the most part, they are closely correlated. Manpower’s performance is primarily dictated by the employment fortunes of these companies, as you can see in the below.
As I’ve stated elsewhere, I do not think that we will experience a recession in the upcoming year. The 2-year vs. 10-year treasury yield, along with the 3-month vs. 10-year treasury yield, has not yet inverted. Typically, after the inversion, the US has 1-2 years before the recession begins. Usually, the unemployment rate doesn’t start ticking up until immediately before the recession. This means that Manpower group is likely getting into the best part of the employment cycle at an attractive valuation.
The market is apparently concerned that Manpower’s earnings and cash flows are at a cyclical peak. I believe we are close to a cyclical peak, but I think a lousy period for Manpower is likely 2-3 years away and is not imminent. In the meantime, I think this is an attractive bargain with the wind at is back.
Manpower has a strong footprint in temporary hiring. This is a segment of Manpower’s business that will likely benefit from where I think we are in the cycle: a period when temporary workers will be in demand as firms struggle to retain employees.
Overall, I believe Manpower will benefit from where we are in the cycle in the upcoming 1-2 years. I am purchasing the stock with a margin of safety, with the stock trading significantly below its historical valuation multiples.
PLEASE NOTE: The information provided on this site is not financial advice and it is for informational and discussion purposes only. Do your own homework. Full disclosure: my current holdings. Read the full disclaimer.