Here Are 3 Staffing Stocks to Consider Despite Industry Headwinds

About the Industry

The Zacks Staffing industry is a diverse sector encompassing companies that offer a comprehensive range of human resources and workforce solutions. These services cover various aspects of personnel management, including employment screening, recruitment services for both temporary and long-term job placements, retirement planning, human capital management, payroll administration, performance evaluation, organizational planning, and financial management. Additionally, some firms within this industry provide specialized services, such as staffing and risk consulting, professional staffing, and global business solutions tailored to the needs of small to medium-sized enterprises. They also offer organizational consulting services with a global reach, catering to a wide and varied client base across different sectors and industries.

What's Shaping the Future of the Staffing Industry?

Resilient Demand: The manufacturing sector experienced contraction in June for the fourth consecutive month, leading to negative impacts on temporary workers’ demand. However, the broader staffing industry is mature and is expected to recover to pre-pandemic revenues, income and cash flows. 

Increased Adoption of Remote Work & Hybrid Models: The swift increase in remote work since the pandemic has led staffing agencies to prioritize flexible staffing solutions, including remote and hybrid models. These adaptations align with the desires of both clients and job seekers for improved work-life balance. With the continued prevalence of remote work, staffing agencies are expected to prioritize and meet evolving workplace preferences effectively.

Technology Use Gaining Traction in Staffing: The staffing sector is progressively using technology to optimize operations, improve efficiency and deliver superior services. The rising adoption of AI-driven tools and platforms is making the process of attracting, assessing and onboarding IT talents more efficient. The adoption of social media and Big Data is increasing as well. Video-conferencing platforms, such as Zoom and Microsoft Teams, facilitate remote communication, and cloud and blockchain technologies bolster HR data security. This ensures a continued demand for staffing services.

Zacks Industry Rank Indicates Dull Near-Term Prospects

The Zacks Staffing Firms industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #186. This rank places it in the bottom 24% of 246 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates a continued outperformance in the near term. Our research shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.

Before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock market performance and current valuation.

Industry's Price Performance

The Zacks Staffing Firms industry has underperformed the broader sector and the S&P 500 over the past year.

The industry has declined 32% against the S&P 500 composite’s growth of 15.9% and the broader sector’s rise of 10.6%.

1-Year Price Performance

Industry's Current Valuation

On the basis of EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization), which is commonly used for valuing staffing stocks because of their high debt levels, the industry is currently trading at 6.53X compared with the S&P 500’s 18.03X and the sector’s 11.37X.

Over the past five years, the industry has traded as high as 8.91X and as low as 6.34X, with the median being 7.59X, as the charts below show.

EV-to-EBITDA

3 Staffing Stocks to Keep a Close Eye on

We have presented three stocks that are poised to grow in the near term.

Korn Ferry: This global organization consulting firm is riding on the back of its ability to provide a broad array of solutions and engaging in large-scale client engagements, which provides a strong and synergistic revenue stream.

KFY’s Digital Subscription and License New Business is providing greater stability and predictability to its fee revenue base. The company is focusing on investing in technology and AI, mainly through its talent suite products, enhancing organizational performance for its customers.

Moving on, Korn Ferry displays a well-structured approach to capital allocation, including hiking its dividend 6 times in five years and investing in mergers and acquisitions and CapEx for platforms, including the talent suite. These strategies are often potent at attracting investor attention.

KFY currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its 2025 bottom line is pegged at $5.16, increasing 11% in the past 60 days. KFYshares have gained 14.5% in the past three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. 

Price and Consensus: KFY

RCM Technologies: This business and technology solutions provider is efficiently transforming itself from an entrepreneurial organization to an innovative company that can deliver outcomes at scale.

RCMT’s healthcare segment’s success is tied to a strong growth narrative across its largest school districts. Its presence in K-12, mainly in behavioral health, is expanding via schools and new contracts. The company is acquiring clients within its life sciences and data and solutions segment, utilizing new offerings, including asset management and design engineering.

Driving factors that include grid modernization, grid interconnect and data center proliferation are the keys toward boosting the engineering segment’s growth. Multi-year contract signings are favorable for RCMT’s long-term growth, as it is seeing success across all segments.

RCMT currently carries a Zacks Rank #3. The Zacks Consensus Estimate for its 2025 bottom line is pegged at $2.2, flat over the past 60 days. RCMT shares have gained 43.7% in the past three months.

Price and Consensus: RCMT

Heidrick & Struggles International: This global leadership advisory firm operates with an objective of value-creation stemming from client needs to achieve excellent business outcomes by ensuring that the right leaders are fit in the right roles.

HSII’s client-focused nature of its business is facilitated by its attractive business model that allows the company to focus on client outcomes rather than financial engineering. These include a well geographically diversified top line, zero client concentration, low capital expenditure, variable cost structure and zero debt.

HSII currently carries a Zacks Rank #3. The Zacks Consensus Estimate for 2025 EPS is pegged at $2.86, flat over the past 60 days. HSII shares have gained 15.1% in the past three months.

Price and Consensus: HSII

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This article originally published on Zacks Investment Research (zacks.com).

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