Obamacare Is Healthy for Temporary-Staffing Companies

NEW YORK (TheStreet) -- Many investors feel confused about conflicting economic indicators. But as they look for investment opportunities, they should note that companies in the staffing and outsourcing sector such as Paychex (PAYX), TrueBlue (TBI), Robert Half International (RHI) and ManPowerGroup (MAN) will likely continue to prosper regardless of the conditions.

The most recent gross domestic product numbers were strong. But writing in today's Wall Street Journal, Robert E. Grady, chairman of the New Jersey State Investment Council, said, "Public companies have trillions of dollars of cash to invest sitting on their balance sheets, but the Obama economy's growth record is weak, and insufficient to attract investment capital."

Growth may be weak, but the $100 billion staffing sector's firms are appealing no matter what the investor outlook. These firms range from prominent blue-chips such Paychex to prominent small-caps such as Labor SMART (LTNC).

Bearish investors should be encouraged that in times of economic uncertainty, businesses shy away from hiring full-time employees. Instead, temporary workers are hired to fill in the gaps to save money. That increases the market demand for staffing firms, especially for those in the $29 billion demand-labor segment such as TrueBlue and Labor SMART.

For the bulls out there, companies coming out of the Great Recession will need more workers. During the Great Recession, many firms adapted their business model to use project workers instead of full-time employees. Corporations realized the value of utilizing contractors, who provide much greater efficiency and much lower costs. Temporary-worker hiring continued during the recovery and will remain important in the future.

That is clearly shown by the growth rates in recent times.

For TrueBlue, the quarterly sales growth rate is 18.9%. Earnings per share are rising at 30.6% for the same period. Labor SMART has reported record revenues for recent quarters, with a very bullish analyst report. With its lucrative niche in legal and accounting services, Robert Half International has an earnings-per-share quarterly growth rate of 17.10%.

In addition, the Affordable Care Act, or Obamacare, has incontrovertibly resulted in more business for the staffing sector. As the health care mandate rolls out, staffing companies will continue to prosper.

Obamacare has new insurance requirements for companies with more than 50 employees. At those companies, employees who work over 30 hours a week have to be provided with health insurance. This expensive health insurance mandate has firms backing off from hiring full-time employees.

As Bob Funk, founder of Express Employment Services, the country's fifth-largest employment agency, stated in a Wall Street Journal interview, "Obamacare has been an absolute boon for my business. I'm making a lot of money thanks to that law. We're up 8% this year. But it's just terrible for the country. I see that firsthand every day... Firms are just very reluctant to hire full-time workers. So they are taking on more temporary help, which is what we do."

The bull market rally has also helped boost many of the stocks in the staffing sector.

The analyst community remains very optimistic about the future for many of these companies. Up nearly 60% for 2013, to around $25.25, the mean analyst target price for TrueBlue for the next year is $29.43. Robert Half International has risen more than 46% this year, but the analyst prediction is  $44.46 for the next year.

The staffing and outsourcing industry should continue to reward shareholders no matter the magnitude of the economic recovery in the United States.

Jonathan Yates does not have a position in any of the stocks mentioned in the article.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Jonathan Yates is a financial writer who has had thousands of articles appear in periodicals and Web sites such as TheStreet, Newsweek, The Washington Post and many others. Much of his career was spent working on Capitol Hill for Members of Congress in both the House and Senate, on both committee and personal staff.  He was also General Counsel for a publicly traded corporation.  He has degrees from Harvard University, Georgetown University Law Center and The Johns Hopkins University.

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