This might be the time to take MAN’s bargain status seriously

As more and more data comes in about COVID-19, the easier it becomes to think in practical terms, not only about how big the problem right now really is, but also to think about its impact in real economic terms. It’s easy to say there is an economic impact taking place right now, but understanding the scope and breadth of that impact is something that is important, especially when it comes to mapping out the course to recovery.

There is a point where COVID-19’s immediate impact – on the health of people all over the globe, and the stress that puts on healthcare systems in every country, including the U.S. – will find a peak and begin to turn back down. That point may be weeks or months to come, and until then we have to put safety first and foremost. At the same time, it’s worth taking note of the very real impact the widespread shut down of business activity is having. Last week’s unemployment claims seemed to confirm the worst is happening, as initial claims topped 6.6 million. It seems clear that a massive number of the kinds of jobs filled by small businesses are among those that are the most directly affected, which naturally also begs the question of whether those workers will be able to return to their previous jobs or be forced to look for other options in other places.

There are a lot of open questions about whether recent measures to provide short-term funding to small businesses will be sufficient to stabilize those businesses and put enough money in the hands of those workers to be useful. I think that one of the companies that could be in a unique position to help fill much of the employment gap, whether as a result of federal intervention or not, is ManpowerGroup Inc. (MAN). MAN is one of the largest providers of workforce solutions and services, with operations that span the globe. Economic recovery means that as business starts to resume some kind of normalcy, that need for talent in highly skilled technical and professional occupations supports the idea that demand for staffing services such as those provided by MAN should also increase.

The stock has been hammered by market volatility, dropping recently to levels it hasn’t seen since mid-2016. In the last month alone, the stock has dropped a little over -24%, but in the last week appears to have started to stabilize. Some of the stock’s consolidation can probably be attributed to a broad market desire to start looking for reasons to stop the panic-induced selling that pushed all of the major market indices into bear market territory.

Fundamental and Value Profile

ManpowerGroup Inc. is a provider of workforce solutions and services. The Company’s segments include Americas, Southern Europe, Northern Europe, Asia Pacific Middle East (APME), Right Management and Corporate. The Company’s Americas segment includes operations in the United States and Other Americas. Its Southern Europe segment includes operations in France, Italy and Other Southern Europe. Its Northern Europe segment includes operations in the United Kingdom, the Nordics, Germany and the Netherlands. The Company’s APME operations provide a range of workforce solutions and services offered through Manpower, Experis and ManpowerGroup Solutions, including permanent, temporary and contract recruitment, assessment and selection, training and outsourcing. The Company’s Right Management segment provides talent and career management workforce solutions. The Company provides services under its Experis brand, particularly in the areas of information technology (IT), engineering and finance. MAN’s current market cap is $3.4 billion.

Earnings and Sales Growth: Over the last twelve months, earnings declined more than -11% while revenues declined by about -3.6%. In the last quarter, earnings improved by nearly 12%, while sales were down -1%. MAN operates with a very narrow margin profile, with Net Income consistently running at only about 2.23% of Revenues over the last twelve-month period, and improving only slightly to 2.67% in the last quarter.

Free Cash Flow: MAN’s free cash flow is healthy, at about $761.5 million. This is a number that has improved significantly from a year ago, when Free Cash Flow was a more conservative, but growing $418 million (well above the year prior to that). This is a good sign the company’s overall profitability is improving, and translates to a very healthy Free Cash Flow yield of 23.44%.

Debt to Equity: MAN has a debt/equity ratio of .49. This is a conservative number that is manageable despite its increase over the last year or so from .17. The company’s balance sheet indicates that despite its narrow margin profile, it is sufficient to service its conservative level of debt, with healthy liquidity from about $1.02 billion in cash and liquid assets to provide additional flexibility against $1.3 billion in long-term debt.

Dividend: MAN pays an annual dividend of $2.18 per share, which translates to a yield of about 3.84% at the stock’s current price. This is also nicely above the $2.02 per share it paid a year ago.

Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but I like to work with a combination of Price/Book and Price/Cash Flow analysis. Together, these measurements provide a long-term, fair value target at about $100 per share. That means the stock is trading at a compelling discount, with almost 75% upside from the stock’s current price.

Technical Profile

Here’s a look at the stock’s latest technical chart.

Current Price Action/Trends and Pivots: The red diagonal line measures the length of the stock’s downward trend from January to its bottom, reached about a week ago around $50; it also informs the Fibonacci trend retracement lines shown on the right side of the chart. The stock’s momentum is clearly bearish, with the stock dropping almost -43% from the beginning of the year. In the last week, however the stock looks like it is stabilizing, with support at the $50 low and now breaking above resistance at around $55 per share. Next resistance is about $14 higher, in the $69 range, with new support back at previous resistance at $55.

Near-term Keys: If you’re looking for a short-term bullish trade, MAN appears to be offering an interesting signal to buy the stock or work with call options, with room anywhere between $65 and $69 per share. If, however the stock breaks back down and drops below $55, you might use it as a signal to consider shorting the stock or buying put options. The stock’s drop, and stabilization could also signal a point where the MAN’s value proposition isn’t just compelling, but possibly too good to pass up for a long-term buying opportunity.


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