The European labor market is beginning to show signs of recovery after 24 months of struggles, according to William Blair & Company LLC Analyst Timothy McHugh. He says Manpower Group Inc. (MAN) is one outsourcing and recruiting firm that will benefit from positive trends in Europe.
“European staffing companies struggled for most of the last 18 months to 24 months, but signs have gradually gotten better as 2013 progressed, and I think as we head into 2014 you’ll see that continue,” McHugh says. “I’m not necessarily sure you’ll see a rapid pace of growth coming out of Europe, but I think growth is certainly going to improve relative to what we’ve seen before.”
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On top of that, McHugh says Manpower should reap the benefits in 2014 of cost-cutting efforts and European tax credits.
“I think the majority of the cost cutting this past year was actually offset by what I would call normal negative operating leverage because of the revenue declines the company was seeing, and the EPS improvement this year mainly came from that tax credit in France, or at least a large chunk of improvement in my view came from that,” McHugh says. “What that means to me is that as you go into 2014 and 2015, as revenue growth improves, that negative operating leverage we saw last year which offset the cost cutting should reverse, and so you should see good operating leverage as revenue picks up here.”
McHugh says he believes Manpower is poised to deliver earnings growth and exceed estimates. He says Manpower’s valuation is in line with its peer group, but he believes Manpower is better positioned for a positive 2014 than some competitors.
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