ManpowerGroup, Inc Stock Is About To Go Ballistic

Rising Demand Drives ManpowerGroup Inc To Profits 

If you want to know why ManpowerGroup Inc (NYSE: MAN) was able to beat the consensus target you have only to look at the labor data. The labor data has improved significantly over the past two months and points to two things. The first is increasing momentum within the labor market, the momentum that is driven by COVID-related trends, economic reopening efforts, seasonal hiring strength, and pent-up demand within the population. The second is a record year for hiring. Not only did the NFP exceed all expectations in the March report, but data from Challenge, Gray & Christmas, JOLTs report, and the Kansas City Fed's Labor Market Conditions Index suggests hiring is already on pace to be the second strongest on record (2020 was the strongest). In that light, ManpowerGroup Inc is sitting pretty in a market desperately in need of its services. And it pays a very healthy 2.1% dividend. 

ManpowerGroup Inc Blows Past Consensus, Guides Higher 

ManpowerGroup Inc had a great quarter but one marred by this year's weaker dollar. The company reported $4.92 billion in net sales or up 6.5% from last year. This beat the consensus by 550 basis points but is only up about 2% from last year on a constant currency basis. Looking past that, the revenue is also down sequentially in terms of the total but the YOY comp is much improved. The company reported a slight YOY contraction in the 4th quarter that was versus a fairly difficult comp. This quarter the comp was easier, the company contracted 8% in the YOY period, and the comps will get easier before they get hard again. The takeaway for us is twofold. On the one hand, revenue is basically flat for the period based on the last few years of data while on the other, revenue and earnings trends are improving in the face of a massive global economic reopening. 

On a segment basis, America's were the only weak spot with revenue down about -0.8% from last year. That is balanced out by an 11.1% increase in Southern Europe, a 6.1% gain in Northern Europe, and a 5% gain in the Asia/Pacific/Middle-East region. Moving down to the earnings portion of the report, the company's margins contracted mildly at the gross level but this was offset by a 118 basis point improvement on the bottom line. This brings the operating margin to 2.0% or up 140% from the previous year. On the bottom line, the GAAP earnings of $1.11 are up 35% from last year and beat the consensus by $0.44.

The company's strength, particularly in the earnings section, was driven in part by improving collections trends. The company has been working hard to increase internal operations and it shows in this data. The number of days sales outstanding improved by nearly 4 days helping the company to not only beat the consensus but improve the cash position. ManpowerGroup Inc has a very strong balance sheet that includes $1.52 billion in cash or enough to completely pay off its debt. Along with that are very low leverage, ample coverage, and free cash flow. Looking forward, the company is guiding earnings higher to a range that is $0.30 above the consensus and driven by a $0.10 FX tailwind. 

ManpowerGroup Inc Is On Track To Increase Its Dividend 

ManpowerGroup Inc is a dividend grower with 10 years of consecutive increase to back it up. With a payout ratio in the range of 45% and such a strong balance sheet, we see no reason why investors shouldn't expect another increase at the end of the calendar year. Based on the history and earnings outlook the next increase could be worth 7% to 10% of the current payout and possibly more. 

The Technical Outlook: ManpowerGroup Breaks Out To New High 

Shares of ManpowerGroup were moving higher even before the Q1 release and are only accelerating that move now. The post-release gap shows a high level of investor confidence but there is a catch. Price action may pull back to support and close the gap before moving higher. In that scenario, we expect to see support confirmed at the $110 level before moving up to new multi-year highs. If price action is able to consolidate at this level that move will only happen sooner. In our view, this stock could easily move back to the $138 level if not higher.