Kelly Services Inc Valuation – August 2018 $KELYA

Company Profile (excerpt from Reuters): Kelly Services, Inc., incorporated on August 27, 1952, is a workforce solutions provider, which is engaged in offering a range of specialty services. The Company provides workforce solutions in three regions: the Americas; Europe, the Middle East and Africa (EMEA), and Asia Pacific (APAC). The Company’s segments are Americas Commercial, Americas Professional and Technical (Americas PT), EMEA Commercial, EMEA Professional and Technical (EMEA PT), and Outsourcing and Consulting Group (OCG). The Company places professional and technical employees at various levels in engineering, information technology (IT), law, healthcare and finance.


Downloadable PDF version of this valuation:

ModernGraham Valuation of KELYA – August 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $937,235,822 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.50 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -1283.33% Fail
6. Moderate PEmg Ratio PEmg < 20 11.83 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.80 Pass
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 1.50 Fail
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

EPSmg $2.06
MG Growth Estimate 11.87%
MG Value $66.46
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $29.89
MG Value based on 0% Growth $17.52
Market Implied Growth Rate 1.66%
Current Price $24.38
% of Intrinsic Value 36.68%

Kelly Services, Inc. Class A is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history. The Enterprising Investor is only concerned with the low current ratio. 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 $1.15 in 2014 to an estimated $2.06 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.66% 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 Kelly Services, Inc. Class A revealed the company was trading below its Graham Number of $38.61. The company pays a dividend of $0.3 per share, for a yield of 1.2% Its PEmg (price over earnings per share – ModernGraham) was 11.83, which was below the industry average of 33.97, 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 $3.92.

Kelly Services, Inc. Class A performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $3.92
Graham Number $38.61
PEmg 11.83
Current Ratio 1.50
PB Ratio 0.80
Current Dividend $0.30
Dividend Yield 1.23%
Number of Consecutive Years of Dividend Growth 2

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $1,397,700,000
Total Current Liabilities $934,200,000
Long-Term Debt $0
Total Assets $2,436,600,000
Intangible Assets $107,300,000
Total Liabilities $1,245,300,000
Shares Outstanding (Diluted Average) 38,900,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.21
Dec2017 $1.81
Dec2016 $3.08
Dec2015 $1.39
Dec2014 $0.61
Dec2013 $1.54
Dec2012 $1.32
Dec2011 $1.69
Dec2010 $0.71
Dec2009 -$3.00
Dec2008 -$2.37
Dec2007 $1.67
Dec2006 $1.75
Dec2005 $1.09
Dec2004 $0.60
Dec2003 $0.14
Dec2002 $0.51
Dec2001 $0.47
Dec2000 $2.43
Dec1999 $2.36
Dec1998 $2.23

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.06
Dec2017 $1.89
Dec2016 $1.81
Dec2015 $1.22
Dec2014 $1.15
Dec2013 $1.10
Dec2012 $0.47
Dec2011 -$0.05
Dec2010 -$0.70
Dec2009 -$0.99
Dec2008 $0.19
Dec2007 $1.33
Dec2006 $1.05
Dec2005 $0.65
Dec2004 $0.56
Dec2003 $0.76
Dec2002 $1.24

Recommended Reading:

Other ModernGraham posts about the company

Best Stocks Below Their Graham Number – August 2017
10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017
Best Stocks Below Their Graham Number – February 2017
14 Best Stocks for Value Investors This Week – 2/11/17
Kelly Services Inc Valuation – Initial Coverage $KELYA

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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.

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