Robert Half: We Maintain Our Narrow Moat Rating and Bullish Forecasts After Taking a Fresh Look

We raise narrow moat-rated Robert Half’s RHI fair value estimate to $98 from $97, driven by the time value of money. We remain optimistic about the firm’s brand equity and network effects bolstering its pricing power. Furthermore, we still think the stock is undervalued.

We are more bullish on long-term margin growth. We now model operating margin to average 11.5% in the next decade, exceeding the 10-year historical average of 10.5%. Robert Half has been prioritizing shifting to a higher-margin business mix, and we expect Protiviti’s contribution to increase to over one third of total revenue. Simultaneously, the contract staffing segment (the lowest-margin business) will decrease in proportion. From a micro lens, each segment also sees a margin increase, driven by efforts to place more managerial roles than administrative roles. Positions higher up the corporate ladder yield higher margins. Moreover, Robert Half has been expanding its pool of full-time engagement professionals, or employees hired and trained by Robert Half before being deployed to client companies. These professionals are generally higher-skilled than free agent contractors, enabling Robert Half to charge higher bill rates.

We still award Robert Half a narrow economic moat because of its pricing power derived from brand strength and growing networks of candidates and employers. 70% of the firm’s client mix are small and midsize businesses, who place higher premiums on service quality. Clients sign with Robert Half given its trustworthy brand name and successful track record of connecting companies with highly skilled jobseekers. Large networks of employers equal more employment opportunities, hence attracting skilled candidates, which in turn draws more top employers. We see no material risks that would deteriorate Robert Half’s brand and networks that would warrant a moat change.