Staffing firms that recruit higher-skilled workers are outperforming their lower-skilled counterparts at this point in the cycle, and they are also enjoying higher margins, says BMO Capital Markets Senior Analyst Jeffrey M. Silber.
“The so-called higher-skilled companies have started to pick up business,” Silber said. “That started maybe about six to nine months after the lower-skilled companies, and we’ve actually seen the stocks of the higher-skilled companies outperform recently.”
Silber points to SFN Group (SFN) as a staffing company benefiting from the current economic situation, and it has workers at both ends of the skill spectrum. SFN also underwent management changes, and its new strategy is more levered toward staffing.
“[SFN‘s] EBITDA margins peaked at 3.7% back in 2007. They’ll probably be back there, if not this year, by next year at the latest,” Silber said. “Even if you don’t believe in the secular growth theory, here is a company that will do better this cycle. The stock has taken a hit recently since they’re seeing revenue growth decelerate, but I think the sell-off was an overreaction and provides a great entry point for investors.”
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