Robert Half International Quarterly Valuation – November 2014 $RHI
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 5 Highest Dividend Yields Among Undervalued Companies for the Defensive Investor - October 2014. 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 -Â PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 -Â PASS
- Earnings Stability – positive earnings per share for at least 10 straight years -Â PASS
- Dividend Record – has paid a dividend for at least 10 straight years -Â 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 -Â 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 -Â 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 -Â 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 -Â PASS
Valuation Summary
Key Data:
| Recent Price | $54.71 |
| MG Value | $61.28 |
| MG Opinion | Fairly Valued |
| Value Based on 3% Growth | $24.54 |
| Value Based on 0% Growth | $14.39 |
| Market Implied Growth Rate | 11.91% |
| Net Current Asset Value (NCAV) | $4.87 |
| PEmg | 32.32 |
| Current Ratio | 2.19 |
| PB Ratio | 7.61 |
Balance Sheet – June 2014
| Current Assets | $1,274,000,000 |
| Current Liabilities | $581,000,000 |
| Total Debt | $1,300,000 |
| Total Assets | $1,588,000,000 |
| Intangible Assets | $200,700,000 |
| Total Liabilities | $613,000,000 |
| Outstanding Shares | 135,700,000 |
Earnings Per Share
| 2014 (estimate) | $2.21 |
| 2013 | $1.83 |
| 2012 | $1.50 |
| 2011 | $1.04 |
| 2010 | $0.44 |
| 2009 | $0.24 |
| 2008 | $1.59 |
| 2007 | $1.81 |
| 2006 | $1.65 |
| 2005 | $1.36 |
| 2004 | $0.79 |
Earnings Per Share – ModernGraham
| 2014 (estimate) | $1.69 |
| 2013 | $1.29 |
| 2012 | $1.00 |
| 2011 | $0.84 |
| 2010 | $0.88 |
| 2009 | $1.18 |
Dividend History
Conclusion:
Robert Half International is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the company’s low level of earnings growth over the last ten years and the high PEmg and PB ratios, while the Enterprising Investor has no initial concerns.  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.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.88 in 2010 to an estimated $1.69 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 11.91% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.
Be sure to check out previous ModernGraham valuations of Robert Half International (RHI)Â for a better perspective!
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.
Disclaimer:  The author did not hold a position in Robert Half International (RHI) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.
