TriNet Group: We Initiate Coverage With a Narrow Moat and $145 Fair Value Estimate

We are initiating coverage of TriNet with a $145 fair value estimate and narrow moat and High Uncertainty Ratings. TriNet offers outsourced payroll and human capital management, or HCM, solutions for small and midsize businesses, primarily via a professional employer organization, or PEO, model. We expect TriNet and fellow HCM providers to benefit from attractive industry tailwinds, including rising regulatory complexity, increasingly dispersed workforces, and fierce competition for talent. In the context of these industry tailwinds, we expect greater penetration of the PEO service model within the broader payroll and HCM market as SMBs look to leverage PEO providers’ scale and expertise to access HR compliance support and competitive employee benefits, and share employment risk liability via a co-employment arrangement. At current prices, TriNet shares screen as attractive, trading at a sizeable 20% discount to our fair value estimate.