Insperity (NSP) Hits New 52-Week High: What’s Driving It?

Shares of Insperity Inc. NSP scaled a new 52-week high of $120.15 during the trading session on Aug 29, before closing a tad lower at $118.70.

The company’s shares have charted a solid trajectory in recent times, appreciating more than 100% year to date, ahead of the 18.1% rise of the industry it belongs to.

Notably, the company has witnessed a 12.8% rise in share price since it posted strong second-quarter 2018 results.

Let’s find out what’s supporting the rally.

Robust Staffing Industry: A Major Growth Catalyst

The U.S. staffing industry is currently benefiting from the promising developments in the broader economy. The labor market has been witnessing record low unemployment levels and strong job additions since the beginning of the year. While the economy continues to create new jobs despite the 18-year low jobless rate, a tight labor market is compelling companies to pay higher to attract and retain employees.

Trump administration’s business-friendly approach, including tax cuts and higher government spending, act as major growth catalysts for the improvement of the overall economy, which in turn inspires optimism about growth of the staffing industry.

All these factors seem to be working in favor of Insperity, which saw its professional employer organization (PEO) solutions revenues from the United States grow 15.9% year over year in second-quarter 2018. The company provides an array of human resources and business solutions through its PEO services, which includes Workforce Optimization and Workforce Synchronization solutions.

The buoyancy in the staffing space is further confirmed by its Zacks Industry Rank in the top 44% (113 out of the 250 plus groups). Additionally, the industry has performed well so far this year compared with the broader Business Services sector and benchmark. It has gained 18.1%, significantly outperforming the broader sector’s and Zacks S&P 500 Composite’s rally of 16.7% and 9.5%, respectively, in the said time frame.

Worksite Employee Growth

Insperity’s top-line growth is directly proportional to the rise in average number of worksite employees paid per month. Notably, the company’s second-quarter 2018 revenues of $922.3 million (up 15.9% year over year) benefited from a 13.1% increase in average number of worksite employees paid per month and 2.4% increase in revenues per worksite employee per month. Average number of worksite employees paid per month was 203.9 million and revenue per worksite employee per month came in at $1,507 in the second quarter.

The double-digit worksite employee growth resulted from strength across new client sales (increased sales activity in mid-market segment), higher client retention (totaled over 99%) and rise in net hiring of worksite employees by the company’s client base (hiring of Business Performance Advisors to boost core client segment growth).

Driven by the higher worksite employee growth rate, the company has raised its guidance for the full year.

Hiked 2018 Guidance

For 2018, Insperity now projects adjusted earnings between $3.49 per share and $3.53 per share, implying growth of 42.4-44.1%, above the previously guided range of $3.36-$3.44 per share. Adjusted EBITDA is projected to grow 26.6-28.9% to a range of $225-$229 million. The prior guided range was $218 million to $223 million. Average WSEs are expected to be in the 207,400 to 209,200 bracket, representing 13.5-14.5% growth. The earlier expected range was between 206,400 and 208,400.

Given these bullish estimates, we believe the company is likely to escalate in the coming quarters as well.

Zacks Rank & Stocks to Consider

Currently, Insperity carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some other top-ranked stocks in the broader Business Services sector include Heidrick & Struggles International HSII, BG Staffing BGSF and Genpact G. While Heidrick & Struggles International sports a Zacks Rank #1, BG Staffing and Genpact carry a Zacks Rank #2.

The long-term expected EPS (three to five years) growth rate for Heidrick & Struggles International, BG Staffing and Genpact is 13.5%, 20% and 10%, respectively.

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