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We maintain our Hold rating on the shares of Robert Half International (RHI). Although the company benefited from double-digit revenue growth in 2007, the global financial crisis and resultant economic slowdown is negatively impacting staffing companies like Robert Half.
The operating margin is contracting, primarily due to weak operations at Protiviti, which embarked on an aggressive global staff expansion program at the same time revenues came under pressure from reduced client demand for compliance-related employees. Robert Half is currently trading at 10.3 times trailing 12-month earnings. The company is quite cyclical, with EPS dropping down to $0.01 in 2002, resulting in a 1,800 P/E ratio when the stock was most attractive. Therefore, the stock should be valued on a price-to-sales (net service revenues) basis.
Robert Half currently trades at 0.61 times trailing 12-month net service revenues (sales). The target of $20.25 is based on a 0.65 P/S ratio on 12-month trailing net service revenues.
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