Thursday, January 08, 2009

Robert Half International (NYSE: RHI): Added to Top Picks Live as a Sell - Citigroup

Citi is out with an interesting call on Robert Half International (NYSE: RHI) adding it to their Top Picks Live (TPL) as favorite Sell idea within their Business & Professional Services universe.

Why Now? — Over the past couple of months, evidence has mounted that deteriorating economic conditions are wreaking havoc on professional staffing and permanent recruiting firms such as RHI. Even then, we’ve witnessed an unjustified run up in the stock (creating a rich valuation). Citi believes economic data (incl Friday’s US employment report) could continue to disappoint and that the timing is right to highlight RHI as their top Sell idea on TPL.

Cutting Ests and PT — Given the host of negative data points of late and RHI's exposure to severe negative leverage in its Perm segment, they are cutting their forward estimates again. For 2009, the firm now projects $0.52 in EPS, down 35% from $0.80 and $0.09 (15%) below consensus. They are also cutting 2010 estimate by $0.28 to $0.62.

Price target goes down by a lesser 13% to $13 from $15 as they increase their targeted multiple range as we are now closer to trough earnings and they give RHI credit for its sizable cash balance.

Bottom Line — Many staffing firms have cut or suspended guidance of late due to weak results and poor visibility, and RHI should be no different. Off of their freshly cut estimates, the stock is trading for ~38x forward earnings, which is almost 3x the multiple of MAN (1H) and 2x the multiple of KELYA (3S).

The firm believes this premium is undeserved, particularly because RHI is the staffer most exposed to negative leverage effects as the recession drags on. They do not foresee a near-term recovery in these trends and expect RHI to suffer.

Notablecalls: I like this one for 3 reasons:

1) The chart - looks like this one wants to go down.

2) The valuation - 38x forward EPS? Any takers? Thought so.

3) The catalyst - tomrrow's employment report. Also, as Citi hints RHI may have to suspend guidance.

How much should it go down?

Would not be surprised to see the stock around $18 in the n-t.

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