Robert Half International Quarterly Valuation – May 2015 $RHI

Rhalf_logoRobert Half International Inc. (NYSE:RHI) should attract all Enterprising Investors, particularly due to the company’s stable earnings growth over the last few years. That said, Benjamin Graham, the father of value investing, taught that the most important aspect to consider is whether the company is trading at a discount relative to its intrinsic value. It is through a thorough fundamental analysis that the investor is able to determine a potential investment’s merits. Here’s an updated look at how Robert Half International fares in the ModernGraham valuation model.

This model is inspired by the teachings of Benjamin Graham, and considers numerous metrics intended to help the investor reduce risk levels. The first part of the analysis is to determine whether the company is suitable for the very conservative Defensive Investor or the less conservative Enterprising Investor, who is willing to spend a greater amount of time conducting further research.

In addition, Graham strongly suggested that investors avoid speculation, in order to remove the subjective elements of emotion. This is best achieved by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another. By using the ModernGraham method, one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

RHI Chart

RHI data by YCharts

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Defensive Investor – Must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – Market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – Current ratio greater than 2 – PASS
  3. Earnings Stability – Positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – Has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – Earnings per share has increased by at least one-third over the last 10 years, using three-year averages at the beginning and end of the period – FAIL
  6. Moderate PEmg (price over normalized earnings) ratio – PEmg is less than 20 – FAIL
  7. 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

  1. Sufficiently Strong Financial Condition, Part 1 – Current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt-to-Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – Positive earnings per share for at least 5 years – PASS
  4. Dividend Record – Currently pays a dividend – PASS
  5. Earnings Growth – EPSmg greater than that 5 years ago – PASS

Valuation Summary

Key Data

Recent Price $55.60
MG Value $62.86
MG Opinion Fairly Valued
Value Based on 3% Growth $24.79
Value Based on 0% Growth $14.53
Market Implied Growth Rate 12.01%
Net Current Asset Value (NCAV) $4.84
PEmg 32.53
Current Ratio 2.12
PB Ratio 7.69

Balance Sheet – December 2014

Current Assets $1,323,000,000
Current Liabilities $623,000,000
Total Debt $1,000,000
Total Assets $1,647,000,000
Intangible Assets $199,000,000
Total Liabilities $667,000,000
Outstanding Shares 135,500,000

Earnings Per Share

2014 $2.26
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 $1.71
2013 $1.29
2012 $1.00
2011 $0.84
2010 $0.88
2009 $1.18

Dividend History

RHI Dividend Chart

RHI Dividend data by YCharts


Robert Half International should satisfy the Enterprising Investor, but not the Defensive Investor. The Defensive Investor is concerned with the level of earnings growth over the last ten years, and high PEmg and PB ratios, while the Enterprising Investor has no initial concerns. Therefore, Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $0.88 in 2011 to $1.71 for 2014. This level of demonstrated growth is in line with the market’s implied estimate for earnings growth of 12.01% over the next 7-10 years. The ModernGraham valuation model, therefore, returns an estimate of intrinsic value falling within a margin of safety relative to the current price, indicating Robert Half International is fairly valued at the present time.

Disclaimer: The author did not hold a position in any of the companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours. Logos taken from either the company website or Wikipedia; this article is not affiliated with the companies in any manner.


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