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Robert Half Earnings: We Curb Short-Term Forecasts and Decrease Fair Value Estimate by 4%

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Robert Half Inc
(RHI)

Narrow-moat-rated Robert Half RHI reported weak 2023 second-quarter results, as hiring demand continues to soften. Management released third-quarter EPS and revenue guidance of $0.83 and $1.53 billion at their respective midpoints, signaling performance to regress to 2021 quarantine levels. We curtail revenue and margin projections for the second half of the year and decrease our fair value estimate by 4% to $94 from $98. However, we maintain our long-term thesis on Robert Half’s strong competitive positioning. We think the stock remains undervalued and currently trades at a 15% discount in 4-star territory.

During the second quarter, consolidated revenue decreased 12% year on year to $1.64 billion, marking the fourth quarter of sequential sales decline. Clients continue to elongate the recruiting process, asking to view more candidates and to conduct additional due diligence before making the official offer. Small and mid-sized businesses, which make up over 70% of its customer base, are particularly cautious. They usually contain 50 to a few hundred employees; therefore, onboarding new employees is a higher-stake decision. Many are adopting a “wait and see” attitude before reengaging in hiring. Consequently, we now forecast total revenue for 2023 to decline significantly by 9% to $6.62 billion from $7.24 billion in 2022.

We attribute Robert Half’s sluggish performance to transitory weak hiring demand as recessionary risks remain a widespread concern. Eventually, we expect a strong rebound, especially for Protiviti. Protiviti’s projects typically require its consultants to work alongside the clients’ internal teams. However, cost-conscious clients are now electing to handle a bigger proportion of the tasks in-house rather than outsourcing. As a result, we see a 1% decrease in Protiviti’s revenue, ending its 22-quarter streak of consecutive year-on-year growth. However, when the macroeconomic environment improves, we expect sales will rise, too.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Joshua Aguilar

Sector Director
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Joshua Aguilar is the director of resources equity research for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc.

Aguilar joined Morningstar in 2016 as an associate on the financials team, and he was promoted to analyst on the industrials team in 2018 and to senior analyst in 2022. He has served as associates coordinator since 2021 and led Morningstar's diversity efforts as DEI co-chair since 2020. Aguilar has been a mentor to several associates on their paths to becoming analysts. He also has hosted a Morningstar earnings town hall, participated in analyzing Morningstar stock, and been a strong contributor through both client interactions and his General Electric stock call. Aguilar co-authored an Outstanding Research Achievement-winning piece with colleague Kris Inton on CEO compensation in 2021. He also has taught Morningstar's model to new hires for many years as part of the valuation committee.

Before joining Morningstar, Aguilar was a practicing business transactional attorney in Florida. He graduated magna cum laude with a bachelor's degree in political science and criminology from the University of Florida. He also has a Master of Business Administration from Rollins College and a Juris Doctor from Wake Forest University.

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