With recessions comes "outplacement", i.e., layoffs. For legal protection, and to help those fired, many companies turn to professional outplacement companies to handle the whole process - conducting the termination interview, helping with resume writing and networking, and providing "career centers", which are temporary offices that can be used by those laid off from which to conduct their search for a new job.
The largest company in this business is Right Management Consultants (RMCI $12), based in Philadelphia, with revenues for the last 12 months of around $180 million. This has been a tough business to be in for the last five years, as companies have expanded, had few layoffs, and when there are layoffs, those fired have been able to get jobs easily, so little help from an outplacement consultant was needed. Nevertheless RMCI has been able to show some modest growth through a combination of decent acquisitions and repurchasing shares at a cheap price.
Despite the fact that the economy for most of this year has been booming, RMCI appears headed for EPS in the $1.30-$1.35 range. So it is presently selling less than ten times its earnings for the worst part of the business cycle. Normally, cyclical companies sell for a high multiple of low end earnings, but there has been such conviction on the part of investors for so many years that recessions are history, that no one seems willing to pay any premium for a company that will clearly benefit from a bad economy.
If the economy continues to head south, RMCI will see a substantial pickup in new business. In addition, companies will have to pay RMCI to keep the career centers for their laid off employees open for much longer periods of time, as it won't be so easy for them to find new jobs in a weak economy.
The net effect is that there is some nice operating leverage that could kick in, such that earnings of $1.50-$1.75 could be possible for 2001, and something well above that for the following year. Back in the mid 1990's, before the economy really took off, the stock was selling in the low to mid $20's, and I think that is certainly a reasonable target for the next six months. |
