NEW YORK (Thomson Financial) - Staffing stocks declined Friday after a
surprisingly weak nonfarm payrolls report highlighted deterioration in the U.S.
labor market.
The U.S. economy lost 63,000 jobs in February, a surprise drop compared to
the 25,000 job gain economists polled by Thomson's IFR Markets had expected from
the survey of employer payrolls.
The report marks the first time since June 2003 that the economy lost jobs
in two consecutive months. February's loss was the largest since June 2003.
"Deteriorating macro conditions have hit the labor markets, and we expect
weakness to continue in coming months," said Morgan Stanley analyst Vance
Edelson.
"Given poor visibility and what will likely be increasing macro headwinds,
we would stay on the sidelines with the staffing stocks," Edelson wrote to
clients.
Edelson said blue-collar and large-company jobs appear particularly weak,
which bodes will for Manpower Inc., while relative strrength in service and
smaller company jobs could be a positive for Robert Half International Inc.
Similarly, Goldman Sachs reiterated its cautious view on the staffing
sector.
"Our analysis suggests that sustained stock appreciation in this group does
not occur until after the Fed stops cutting rates," analyst David Feinberg wrote
to clients.
Goldman reiterated its sell ratings on Heidrick & Struggles International
Inc., Korn Ferry International, Kelly Services Inc. and Spherion Corp., saying
their business models are the "most vulnerable" to the slowing U.S. labor
market.
Among individual issues, shares of Robert Half fell 1.2 cents to $24.97,
Manpower dropped 2.2% to $56.62, while Korn Ferry tumbled 4.4% to $15.52.
Spherion was fractionally lower at $6.16 and Paychex Inc. shed 24 cents to
$30.71. MPS Group lost 2 cents to $11.
Shares of Heidrick & Struggles slumped nearly 5% to $32.13 after SunTrust
Robinson Humphrey downgraded the stock to reduce from neutral with a price
target of $26.
The firm said Heidrick & Struggles' current stock valuation "does not
adequately price in potential margin contraction" in the current slowing
economy.
Wanfeng Zhou
wz/pc
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