Robert Half Faces Economic Cycle Risks, Goldman Sachs Says In Downgrade

Human resource consulting company Robert Half International Inc. (NYSE: RHI) could be in for a slowdown due to its sensitivity to the economic cycle, according to Goldman Sachs.

The Analyst

Analyst George Tong downgraded Robert Half from Neutral to Sell and lowered the price target from $70 to $67, which suggests 15-percent downside from current levels.

The Thesis

About 75 percent of Robert Half's revenue is forecast to come from temporary hiring in 2018, Tong said in the downgrade note. (See his track record here.) 

The analyst said he sees a slowdown occurring in U.S. temporary staffing indicators. 

Over the past three quarters, temporary penetration rate increases have moderated and temporary payroll growth slowed from 4 percent in February to 3.3 percent year-over-year currently, Tong said. A slowdown in temporary wage growth since the second quarter of 2017 is suggestive of a demand-supply imbalance, an early indicator of cycle maturity, he said. 

Goldman Sachs has a muted view of Robert Half's earnings growth potential over the next two to three years. 

"We believe earnings growth will be constrained in an environment of decelerating revenue growth and muted margin performance from decreasing operating leverage," Tong said. 

The valuation of Robert Half shares is elevated relative to the company's positioning in the economic cycle and its EPS growth expectations, the analyst said. 

The Price Action

Robert Half shares have gained about 44 percent year-to-date.

The stock was trading down 5.74 percent at $74.25 at the time of publication Wednesday.

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