Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a stock analysis showing a specific look at how Robert Half International Inc (RHI) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Robert Half International Inc. provides specialized staffing and risk consulting services. The Company’s divisions are Accountemps, Robert Half Finance & Accounting, OfficeTeam, Robert Half Technology, Robert Half Management Resources, Robert Half Legal, The Creative Group and Protiviti. It operates through three segments: temporary and consultant staffing, permanent placement staffing, and risk consulting and internal audit services. The Accountemps, Robert Half Finance & Accounting and Robert Half Management Resources divisions provide professionals in the fields of accounting and finance. Its OfficeTeam specializes in skilled temporary administrative support personnel. Robert Half Technology provides information technology (IT) professionals. Robert Half Legal provides staffing of attorneys and specialized support personnel. The Creative Group provides project staffing in the interactive media, design and marketing fields. Protiviti is a business consulting and internal audit firm.
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Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$6,126,568,023||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||1.89||Fail|
|3. Earnings Stability||Positive EPS for 10 years prior||Pass|
|4. Dividend Record||Dividend Payments for 10 years prior||Pass|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||248.02%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||19.03||Pass|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||5.68||Fail|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||1.89||Pass|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||0.00||Pass|
|3. Earnings Stability||Positive EPS for 5 years prior||Pass|
|4. Dividend Record||Currently Pays Dividend||Pass|
|5. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||14.24%|
|MG Value based on 3% Growth||$36.54|
|MG Value based on 0% Growth||$21.42|
|Market Implied Growth Rate||5.27%|
|% of Intrinsic Value||51.46%|
Robert Half International Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PB ratio. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.29 in 2013 to an estimated $2.52 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.27% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Robert Half International Inc. revealed the company was trading above its Graham Number of $21.95. The company pays a dividend of $0.88 per share, for a yield of 1.8% Its PEmg (price over earnings per share – ModernGraham) was 19.03, which was below the industry average of 21.9, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $4.6.
Robert Half International Inc. performs fairly well in the ModernGraham grading system, scoring a B-.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||$4.60|
|Number of Consecutive Years of Dividend Growth||5|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||12/1/2016|
|Total Current Assets||$1,284,234,000|
|Total Current Liabilities||$679,896,000|
|Shares Outstanding (Diluted Average)||128,766,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$2.54|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$2.52|
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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. See my current holdings here. This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions. ModernGraham is not affiliated with the company in any manner. Please be sure to review our detailed disclaimer.