Robert Half Downgraded On Lack Of Catalysts At Credit Suisse

Credit Suisse’s Anjaneya Singh believes that Robert Half International Inc. RHI has low exposure to early cycle geographies although more resilient verticals, which suggests that the company is likely to see fewer catalysts and higher downside risk in a slowing labor market.

Singh downgraded the rating on the company from Neutral to Underperform, while lowering the price target from $37 to $33.

Limited Catalysts

Temp headcount has continued to decelerate in the US, while Robert Half’s temp business usually outperforms during periods of contraction and growth.

“With a slowing labor market, as evidenced by lower non-farm payroll growth and an unemployment rate that has flat-lined, we see limited catalysts on the horizon for RHI stock,” the analyst mentioned.

Although higher wages and perm could lead to better temp margins and conversions for the company, Singh believes that these factors were unlikely to be sufficient offsets.

Margins

On the other hand, the analyst noted that temp margins appear to be nearing peak levels, and further margin upside would need to be driven by a higher mix of Protiviti and Perm.

“Although both Perm and Protiviti have room for higher margins, we note that recent trajectory has been flat/down Y/Y in both segments. Our conviction on the strength of mix driven margin expansion is further lowered when we consider the recently slower Y/Y growth in Perm and Protiviti, and the relatively tough comps for the next ~3 quarters,” Singh stated.

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