Robert Half Earnings: We Plan to Slightly Decrease Fair Value Estimate; Stock Remains Undervalued

We expect to decrease narrow-moat-rated Robert Half’s RHI $94 fair value estimate by 2% to 4%. Hiring demand continues to soften given the uncertain macroeconomic landscape. Robert Half’s third-quarter consolidated revenue of $1.56 billion decreased nearly 15% year on year but lies within management’s previous guidance. Diluted earnings per share of $0.90 also met expectations, in fact, results were at the upper end of the management’s prior guidance. We see management meeting the upper end of guidance as a positive sign. In our view, it demonstrates the firm is weathering the current climate. Management released fourth-quarter EPS and revenue guidance of $0.82 and $1.47 billion at their respective midpoints, signaling that customer hiring activities will still stagnate. Nonetheless, we think the stock remains undervalued, and we maintain our long-term thesis on Robert Half’s strong competitive positioning.

During the third quarter, consolidated revenue decreased 14.7% year on year to $1.56 billion, marking the fifth quarter of sequential sales decline. Both business clients and job candidates are showing risk aversion to employment change. Clients hesitate to commence new recruiting initiatives due to budget sensitivity and fear of not finding ideal replacements, while many candidates seek the familiarity and security of their current employers rather than risk being laid off in new roles. Consequently, we expect to marginally lower our total revenue forecast for 2023.

We think the headwinds Robert Half faces are temporary. Weak hiring demand is a headwind for all staffing companies in the industry. Eventually, we expect a strong rebound, especially for Protiviti, its subsidiary consulting arm specializing in technology, risk, and compliance matters. Businesses will continue to advance their technological capabilities and seek legal assistance relevant to their operations, driving demand for such talents and services.