Goldman Sachs Initiates Coverage On Business Service Stocks

Goldman Sachs has initiated coverage on nine business services stocks. While Goldman is bullish on a handful of names, the firm also named one stock to avoid.

The Analyst

Goldman analyst George Tong has initiated coverage of the following stocks:

• Cintas Corporation CTAS - Buy rating and $210 price target.
• Korn/Ferry International KFY - Buy rating and $59 price target.
• Iron Mountain Inc IRM - Buy rating and $41 price target.
• Bright Horizons Family Solutions Inc BFAM - Neutral rating and $104 price target.
• H & R Block Inc HRB - Neutral rating and $28 price target.
• ManpowerGroup Inc. MAN - Neutral rating and $128 price target.
• Robert Half International Inc. RHI - Neutral rating and $63 price target.
• 2U Inc TWOU - Neutral rating and $92 price target.
• Houghton Mifflin Harcourt Co HMHC - Sell rating and $6.50 price target.

The Thesis

There are several themes to like in the business services space, Tong said in a note. Use of third-party professional services has been on the rise, a changing regulatory environment has created demand for compliance assistance and waves of technology refresh cycles have put pressure on companies to streamline their efficiency.

“Revenues are often sticky and recurring in nature, there is strong fixed cost leverage unlocking average incremental EBITDA margins of 27% in 2019 vs 17% 2017 margins, and average cash returns on cash invested (CROCI) are robust at 18.5%,” Tong said.

Cintas is Goldman’s top business services stock pick, and Tong said the firm has added it to its Conviction Buy list due to the synergy opportunities created by its recent acquisition of G&K Services.

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