Recruitment specialist Kforce (NASDAQ:KFRC) has developed a pretty good history of matching or beating earnings estimates in recent years. It hasn't "missed" a quarter since Q2 2004. Can the company keep up the good work? Tune in tomorrow after market close to find out.
What analysts say:
- Buy, sell, or waffle? Five analysts now follow Kforce (up one from three months ago). Four of them call it a buy, and one says hold.
- Revenues. Revenue is estimated to have grown 17% since last year, to $225.4 million.
- Earnings. Analysts are looking for 62% profits growth, to $0.13 per share tomorrow.
What management says:
Kforce CEO David Dunkel said all the right things last February, when he reported the company's most recent trouncing of year-ago results. He cited the firm's operating leverage as contributing to the results (profits up 31% year over year), called "staffing cycle dynamics ... positive" (which is another way of saying that employers are hiring), and noted that Kforce is hiring recruiters of its own to keep up with the demand. Looking forward, CFO Joe Liberatore added that Kforce attained a 5.6% operating margin last quarter, up 300 basis points from the year ago period, and is working toward achieving an operating margin of 8%-10%. So let's see how close they are to reaching that goal.
What management does:
Still a ways to go, it seems. On a rolling basis, Kforce is generating profits before income taxes of about 5% at last report. So the company is roughly half as profitable as it wants to be. And while that sounds like bad news, it's actually good news for current shareholders -- if the company can actually achieve its goals.
So far, the trend is looking good Kforce shareholders. The company's gross margins are expanding, and operating profitability has already nearly doubled over the last year. Net profits may appear to have plunged last quarter -- but don't be fooled. Because these are "rolling," or trailing-12-month results that we're looking at, what happened in the December 2005 quarter is simply that we saw a return to normality (after four quarters' worth of net margins inflated by a $12.6 million tax credit recorded in December 2004).
|
Margins % |
9/04 |
12/04 |
4/05 |
7/05 |
10/05 |
12/05 |
|---|---|---|---|---|---|---|
|
Gross |
30.6 |
30.8 |
31.1 |
31.4 |
32 |
32.4 |
|
Op. |
1.9 |
2.1 |
2.6 |
3.6 |
4.2 |
5 |
|
Net |
1.7 |
3.8 |
3.7 |
4.2 |
4.2 |
2.8 |
One Fool says:
What's more, all the above numbers are focusing on accounting profits. Personally, I trust cash more than accountants. Which is why I have to point out that, over the last six months, Kforce generated $30.9 million in free cash flow, versus GAAP profits reported at less than half that sum: $13.6 million.
All in all, the last four quarters have seen Kforce generate $44 million in free cash flow. Against a market capitalization of just $550 million, and carrying almost no net debt, that makes the company look awfully cheap, at just 12.5 times trailing free cash flow. If the analysts know what they're talking about and Kforce is indeed able to grow profits at 20% per annum over the next five years, then that leaves the company quite attractively priced.
Competitors:
- Adecco (NYSE:ADO)
- CDI Corp (NYSE:CDI)
- Manpower (NYSE:MAN)
- MPS Group (NYSE:MPS)
- Robert Half (NYSE:RHI)
- Spherion (NYSE:SFN)
Fool contributor Rich Smith does not own shares of any company named above.
