Robert Half International (RHI) Quarterly Valuation – May 2014
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 5 Undervalued Companies for the Defensive Investor Near 52 Week Lows. 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 specific look at how Robert Half International (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 operates in three segments: temporary and consultant staffing, permanent placement staffing, and risk consulting and internal audit services. The Company, through its Accountemps, Robert Half Finance & Accounting, and Robert Half Management Resources divisions, is a specialized provider of temporary, full-time, and project professionals in the fields of accounting and finance. OfficeTeam specializes in skilled temporary administrative support personnel. Robert Half Technology provides information technology professionals. Robert Half Legal provides temporary, project, and full-time staffing of attorneys and specialized support personnel within law firms and corporate legal departments. The Creative Group provides project staffing in the advertising, marketing, and Web design fields. Protiviti is a global business consulting and internal audit firm.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
- Earnings Stability – positive earnings per share for at least 10 straight years – PASS
- Dividend Record – has paid a dividend for at least 10 straight years – PASS
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
- Moderate PEmg ratio – PEmg is less than 20 – FAIL
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend – PASS
- Earnings growth – EPSmg greater than 5 years ago – PASS
Valuation Summary
Key Data:
| MG Value | $14.55 |
| MG Opinion | Overvalued |
| Value Based on 3% Growth | $18.78 |
| Value Based on 0% Growth | $11.01 |
| Market Implied Growth Rate | 13.00% |
| Net Current Asset Value (NCAV) | $4.38 |
| PEmg | 34.51 |
| Current Ratio | 2.19 |
| PB Ratio | 6.68 |
Balance Sheet – 12/31/2013
| Current Assets | $1,172,500,000 |
| Current Liabilities | $535,900,000 |
| Total Debt | $1,300,000 |
| Total Assets | $1,490,300,000 |
| Intangible Assets | $201,400,000 |
| Total Liabilities | $570,600,000 |
| Outstanding Shares | 137,470,000 |
Earnings Per Share
| 2013 | $1.83 |
| 2012 | $1.51 |
| 2011 | $1.04 |
| 2010 | $0.44 |
| 2009 | $0.24 |
| 2008 | $1.63 |
| 2007 | $1.81 |
| 2006 | $1.65 |
| 2005 | $1.36 |
| 2004 | $0.79 |
Earnings Per Share – ModernGraham
| 2013 | $1.30 |
| 2012 | $1.01 |
| 2011 | $0.85 |
| 2010 | $0.89 |
| 2009 | $1.19 |
| 2008 | $1.59 |
Conclusion:
Robert Half International is suitable for Enterprising Investors but not Defensive Investors. Â The company does not pass the Defensive Investor’s requirements regarding earnings growth over the ten year period and has PEmg and PB ratios that are too high. Â However, the company passes all of the Enterprising Investor’s requirements. Â As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities such as through a review of 5 Outstanding Dow Components. Â From a valuation side of things, the company appears overvalued after growing its EPSmg (normalized earnings) from $1.19 in 2009 to only $1.30 for 2013. Â This low level of demonstrated growth does not support the market’s implied estimate of 13% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls below the market price.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Robert Half International (RHI)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!
Disclaimer: Â The author did not hold a long position in Robert Half International (RHI) or any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.
Logo taken from wikipedia; this article is not affiliated with the company in any manner.
