Manpower Earnings: We Maintain Our FVE After Weaker Q2 Results, but We See Upside in Shares Long Term

We maintain no-moat Manpower’s MAN fair value estimate at $106. Manpower’s second-quarter results were slightly below our expectations, as hiring demand continues to soften. Management released third-quarter EPS guidance of $1.37 at the midpoint, a significant decline compared with last year’s $2.13. We curb our near-term revenue forecasts of low-performing geographic segments, such as the Americas. Nonetheless, we think the stock remains undervalued and currently trades at a 20% discount in 4-star territory.

During the second quarter, consolidated revenue declined 4.3% year on year to $4.9 billion. Total operating margins dropped 140 basis points to 2.2%, nearly flat sequential growth compared with the previous two quarters. Enterprise clients, which contribute over 60% of revenues, continued to pull back on hiring. As a result, Talent Solutions, an enterprise-focused brand, suffered a 9% revenue reduction. Its flagship offering, Recruitment Process Outsourcing, saw a significant decline as large corporations converted to in-house models to cut costs. The decrease in order volume was particularly pronounced in the United States, which accounts for nearly a fifth of the firm’s total revenue. We now forecast the U.S. market to decrease by 13% year on year in 2023, a significant drag on overall sales growth.

We attribute Manpower’s suboptimal performance to the temporarily weak market demand. When the macroeconomic environment improves, we expect sales to rise as well. We anticipate a strong rebound in Talent Solutions. Its well-known brand and high-quality services safeguard its competitive positioning. In fact, Talent Solutions was named an industry leader in RPO earlier this month for the 13th year. Likewise, we believe the prospects for Experis remain positive despite a revenue decline of 11% this past quarter. Companies will continue to advance their digital and technological capabilities, which drives the demand for IT-related talent.