Smart Investing


August 17, 2012


Unemployment, Manpower and investing in the American worker

We all know that the unemployment rate is high — it's above 8 percent and seems to be stuck there. While we can blame a slow economy for the stubbornly high unemployment, what I don’t think people realize is that some of it is a result of above-average productivity.

Think about it: Fifty years ago, even 25 years ago, it took more people to build a car because there was less automation.

Building a house takes fewer people now because even a simple thing like an air hammer allows a carpenter to hammer more nails than ever before, therefore necessitating fewer carpenters.

Remember the days when a draftsman would draw plans by hand? That’s all done by computer now.

Think about how automation has increased your productivity in your own profession over the last 20 to 30 years. Remember the day you couldn’t make a business call until you got back to the office?

The American worker is the most productive in the world and now can do the work of perhaps two people compared to just a decade or two ago. The technical revolution has cost some jobs, but as people get retrained — just like they had to do during the Industrial Revolution — the unemployment rate will start to move in a positive direction.

So, keeping that in mind, does it make any sense to invest in an employment company like Manpower (NYSE: MAN)? This company was founded in 1948, and I was surprised to learn it is headquartered in Milwaukee. It has 31,000 full-time employees and offers permanent, temporary and contract recruitment services, along with training and assessment. The company's market capitalization is about $3 billion.

The valuation ratio looks attractive, starting with the PE ratio of 13.5, well below the industry average of 21.1.

Price to sales looks very good at only 0.14 for Manpower, compared to the industry at 1.53.

The industry, which Reuters calls "business services," has no tangible book value. Manpower does have a well-priced tangible book value trading at 2.6 times. The price-to-cash flow of 9.1 is the same for both the company and the industry.

Manpower pays a decent dividend of 2.3 percent, using only 29.4 percent of its earnings to pay that dividend. The industry only pays a 1.6 percent dividend but needs 32.1 percent of its earnings to pay that dividend.

Manpower seems to be struggling a little on sales growth, which comes in at 3.1 percent — roughly one-quarter the industry at 12.7 percent. Earnings per share were up 216 percent for Manpower, well above the 9.9 percent growth for the industry.

I’m sure the 200 percent-plus earnings-per-share number raised some eyebrows, so I checked the income statement and found that in the quarter ending December 2010, the company had an asset impairment charge of $429 million, which took a big chunk of the EPS for the previous 12 months. If it weren’t for that charge against earnings, the EPS growth would be nowhere near 200 percent.

The balance sheet looked pretty good, with a current ratio of 1.4, slightly above the industry at 1.3.

I should point out that most of the liquidity is coming from receivables at $4.3 billion and only $455 million in cash and short-term investments. Debt to equity also looks good at 30.1 for Manpower, well below the industry average of 80.3. Of the $755 million of debt, roughly $309 million is in short-term notes payable due in less than one year. This is down from last quarter's $454 million, but I would like to see the company either pay its short-term debt off or lock it in to lower long-term rates going forward.

I was disappointed with the net profit margin of 1 percent compared to the industry average of 7.2 percent. I was hoping to see a better return on equity, but was disappointed here as well to see the company ROE at 8.9 percent, half the industry average of 18.8 percent.

Over the last year, the stock has seen a high price of $48.28 and a low price of $30.53. Looking out to the year ending December 2013, the mean of 16 analysts are looking for an EPS of $2.94 — this is down almost 20 percent from the $3.63 estimate 90 days ago. This may explain some of the reason for the fall in the stock, but if an investor places a 16.5 multiple on the EPS estimate, the target sell price would be $48.51, a gain of nearly 30 percent. The price/earnings-to-growth ratio came in a little high at 1.97, and the company has surpassed every EPS estimate over the last four quarters.

If you’re going to invest in this company, besides doing your own research, be sure to watch the economic reports and pay attention to what is going on with jobs.

Have a question or a company you'd like me to take a look at? Email me at

Wilsey is president of Wilsey Asset Management and can be heard every Saturday at 8 a.m. on KFMB AM760. Information is provided by Reuters.


August 17, 2012