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Taking It Personnelly

Despite shares' recent slump, temp-help firms remain good portfolio candidates, analysts say.

December 10, 1996|JAMES F. PELTZ

Not long ago, Olsten Corp., which provides home health-care workers and temporary employees for industry, announced that its fourth-quarter profit was going to be unexpectedly low. Investors promptly battered Olsten's stock.

As is often the case on Wall Street, investors also sold off other personnel companies--among them AccuStaff Inc., Robert Half International Inc. and Interim Services Inc.--on grounds that whatever ails Olsten might be giving the others problems too.

But analysts, anxious to protect their favorite picks in the industry, rushed out bulletins arguing "not so" and asserting that Olsten's struggles are not shared by other personnel firms.

Some of the companies themselves hustled up news releases to assure investors that they were in better shape than Olsten, whose stock has plunged 46% this year overall and now stands at about $14 a share. "We fully expect to meet or exceed" fourth-quarter earnings estimates, AccuStaff promised.

And the fact is, the business of placing temporary workers continues to have a rosy long-term outlook, experts say. The "downsizing" of corporate America--where companies are doing everything they can to slash costs and so remain competitive--is benefiting the temp-placement industry in spades.

As companies downsize, they're turning over the recruitment and management of temporary help to outside firms such as Olsten and the others. In doing so, they convert a sizable fixed labor cost into a flexible cost that rises and falls depending on the number of temp workers they need to get the job done.

In response to those changing trends, stocks of some placement firms have soared this year. Uniforce Temporary Personnel Inc., recently trading at $19, has shot up 72% in 1996. Robert Half International, despite its Olsten-related setback, is up a whopping 66% so far this year, to a recent $34.75 a share.

But not all of the temp firms serve the same customers, and that's where stock pickers must start to determine whose prospects they like from here on.

Olsten, based in Melville, N.Y., has two main lines of business. First, it provides temporary workers to general industry, including corporate offices and government agencies. As part of that effort, it's been trying to snare more "national account contracts," or long-term mega-contracts to serve companies that have employment needs all over the country, or the world.


Trouble is, such contracts are also coveted by the industry's familiar powerhouses, Manpower Inc. and Kelly Services Inc., and that fierce competition has been reducing Olsten's fees and its profit margins, analysts say.

Kelly, too, has been feeling the pinch. Although the Troy, Mich.-based company's revenue rose 22% in the first nine months of this year (to $2.4 billion), its operating costs remain too high, and that capped its profit increase for the same period to just 5% from a year earlier (to $52 million). That represents a meager after-tax profit margin of 2%, and Wall Street clearly isn't happy about it. Kelly's stock, at about $26 a share, is down 5% this year.

The other part of Olsten's business is health care. Even though Olsten's Kimberly QualityCare unit is the nation's largest provider of workers, or caregivers, for home health care, changing trends in that industry are also causing problems for the company.

Managed-care operators are insisting on lower prices from temp agencies such as Olsten, putting pressure on them to keep paring their costs as well. Also, the growing migration of Medicare patients to privately run health maintenance organizations is reducing how much cost reimbursement Olsten gets from the government.

But analysts emphasized that several other temp outfits focus on different markets than does Olsten and therefore don't have all of its problems to tackle.

Two examples: Robert Half and Interim Services, which are on the "buy" list of Montgomery Securities analyst Theresa Matacia.

Robert Half, the Menlo Park, Calif.-based concern, "has no exposure to health care or national mega-contracts," Matacia says in a new report. Interim Services, at $34.25 a share, has only modest health-care exposure and likewise "does not compete with Manpower or Olsten for high-volume, low-margin mega-contracts."

Another firm, CDI Corp., mainly provides workers for the aerospace, auto and chemical industries, and it therefore gives investors a way to invest based on the employment prospects of a small group rather than the entire U.S. office market.

But CDI's fortunes tend to fluctuate sharply in tandem with the ups and downs of the industries it serves, and investors should note that it's already deep into its latest rally. Trading at about $29 a share, CDI is up a sparkling 60% this year.

Times staff writer James F. Peltz can be reached at


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