Manpower: We Maintain Our No Moat Rating and Confidence in the Firm’s Long-Term Growth Outlook

We raise no moat-rated ManpowerGroup’s MAN fair value estimate to $106 from $102, primarily driven by the time value of money. We are optimistic about Manpower’s profit margin strategy and maintain our thesis that the stock is currently undervalued with a 4-star rating.

After taking a fresh look, we are more bullish on Manpower’s long-term margin growth. We now model the total operating margin to average 4% in the next 10 years, exceeding its 10-year historical average of 3%. Manpower has been prioritizing shifting toward higher-margin businesses to improve profitability while reducing its overall cyclicality. Its high-margin brands, Experis and Talent Solutions, now combine to contribute approximately 43% of the firm’s gross profits. They continue to grow at record levels as a percentage of the overall business. Manpower’s two largest competitors, Adecco and Randstad, are also actively diversifying into less cyclical staffing offerings, such as employee layoff advisory services and using data analytics to help clients identify ideal locations for new branches. Manpower should be pressured to keep up its diversification efforts.

We maintain Manpower’s no-moat rating, given that the firm struggles to consistently outearn its cost of capital through the economic cycle in this highly competitive industry. Manpower’s trustworthy brand name and growing network of candidates and employers fail to create pricing power. The firm targets large corporations, who often purchase in bulks at lower prices and sign nonexclusive contracts with multiple staffing firms. It’s typical that candidates also sign up on competitors’ recruitment platforms. As a result, Manpower’s network value diminishes. Randstad and Adecco both have sizeable candidate databases capable of meeting demand and taking clients away. We lack confidence in Manpower’s ability to generate excess returns on capital over the span of the next 10-plus years.