The Staffing Firms industry is expected to attain its pre-pandemic levels gradually, allowing companies to pay regular dividends. The surge in the adoption of remote work and hybrid models with the amalgamation of top-notch technological advancements will drive demand for staffing agencies. Korn Ferry KFY, Heidrick & Struggles International, Inc. HSII and RCM Technologies, Inc. RCMT are benefiting from technological developments that improve efficiency.

Industry Description

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, which includes domestic and international businesses.

What's Shaping the Future of the Business Services Industry?

Stable Demand: The industry is mature. The consistency in demand for services despite the economic downturn in the manufacturing sector has been robust for some time now. A gradual recovery to the pre-pandemic levels is anticipated for revenues, income and cash flows, allowing most industry players to pay out stable dividends.

Rising Adoption of Remote Work & Hybrid Models: A significant surge in remote work has been observed since the pandemic and it has made the staffing agencies focus on flexible staffing solutions, including hybrid and remote work models. These adaptations help meet the desires of clients and job seekers for a better work-life balance. Given the sustained prevalence of remote work, staffing agencies are anticipated to prioritize and effectively meet evolving workplace preferences.

Tech-Driven Staffing Solutions on the Boom: The staffing sector is using technology to optimize operations, increase efficiency and deliver services at their highest quality. The growing adoption of AI-driven tools and platforms makes attracting, evaluating and onboarding IT talents more effective. The increasing adoption of social media and Big Data is being witnessed as well. Video-conferencing platforms, such as Zoom and Microsoft Teams, facilitate remote communication, and cloud and blockchain technologies bolster HR data security. Such technological advancements ensure that the demand for staffing services continues.

Zacks Industry Rank Indicates Sluggish Near-Term Prospects

The Zacks Staffing Firms industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #136. This rank places it in the bottom 46% of 250 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 look at the industry’s recent stock market performance and current valuation.

Industry Lags Sector & S&P 500

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

The industry has declined 11% against the S&P 500 composite’s growth of 32% and the broader sector’s rise of 29.2% in the same timeframe.

One-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 8.01X compared with the S&P 500’s 18.39X and the sector’s 29.42X.

Over the past five years, the industry has traded as high as 8.85X and as low as 6.92X, with the median being 7.82X, as the charts below show.

EV-to-EBITDA

3 Staffing Stocks Poised for Growth

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

RCM Technologies: This business and technology solutions provider is benefiting from the strong performances of the Life Sciences, and Data & Solutions divisions. Healthy client engagement, successful project completions and focus on expanding RCMT’s service offerings are driving the said segments.

Efficient cost management and rising operational efficiencies are improving RCMT's overall performance. Continued investment in technology and process enhancement is allowing the company to optimize resource allocation. The demand for the company’s consulting services in Life Sciences, primarily in data integrity, is increasing as clients are seeking data-driven insights for informed decision-making.

RCMT carries a Zacks Rank #2 (Buy) at present. The Zacks Consensus Estimate for its 2024 bottom line has increased 1.3% in the past 90 days. RCMT shares have gained 12.2% in the past three months.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: RCMT

Heidrick & Struggles International: This provider of executive search, consulting and on-demand talent services to businesses and business leaders is riding on its Executive Search and on-demand talent businesses. Strong performance across the Americas and the Asia Pacific is fuelling the Executive Search business of HSII. Despite the slowdown in the broader temporary staffing space, the company’s unique position in attractive market segments is driving the on-demand talent business.

Growing leadership assessment and development engagements, along with purpose-driven change solutions, are driving the company’s organic revenues. It launched a couple of tools on its OneSearch platform, enabling the team to do an efficient job of partnering with its clients. HSII’s new leadership team has clarity and conviction, which is benefiting its bottom line.

HSII currently has a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its 2024 bottom line has increased 1.9% in the past 90 days. Its shares have gained 21.1% in the past three months.

Price and Consensus: HSII

KornFerry International: This organizational consulting service provider is riding on the back of growing executive search, stable trends across professional search and Recruiting Process Outsourcing.

KFY is benefiting from rising consulting rates, reflecting the value of its solutions and SaaS agreements. The company extends its brand, and delivers multiple services using its IP and expert workforce. This allows KFY to aid its clients.

Continued stability in the Consulting and Digital segments is fuelling the company’s fee revenues. The bottom line is being driven by continuous enhancements in its employee productivity and the KFY’s disciplined cost management.

KFY currently carries a Zacks Rank #3. The Zacks Consensus Estimate for 2024 EPS has increased from $4.81 to $4.84 in the past 90 days. KFY shares have gained 8.6% in the past three months.

Price and Consensus: KFY

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Korn/Ferry International (KFY) : Free Stock Analysis Report

Heidrick & Struggles International, Inc. (HSII) : Free Stock Analysis Report

RCM Technologies, Inc. (RCMT) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research