Fourth quarter earnings season is here and expectations are for a decline of 5.3% for companies in the S&P 500 on a year-ago basis. This would mark the third consecutive quarter of lower earnings, the worst streak since the third quarter of 2009. 

While materials and energy are feeling the most pain, analysts have downgraded their EPS estimates in nine of the ten sectors tracked by FactSet Research over the past three months. It’s not just earnings that are looking weak in this market. Revenue is on track to post its fourth consecutive quarterly decline with analysts expected a dip of 3.3% in sales compared to the same period last year.

#-ad_banner-#It’s been a tough quarter for most companies and may get worse before it gets better. 

But one company looks to buck the trend and could actually report stronger-than-expected earnings. This company has a history of beating expectations and operates within one of the few bright spots in the economy.

The Only Stable Market Right Now Is The Job Market
The U.S. employment picture has been one of the few bright spots in the economy, adding 292,000 jobs in December. In fact, jobless claims finished 2015 at the lowest level since 1973. 

The professional and business services category added 605,000 jobs in 2015, with 73,000 of that just in December. Hiring in the category accounted for 22% of total 2015 job growth. Hiring in professional services and the financial sector should do relatively well even as interest rates increase and as the interest rate spread increases for financial service companies. Bookkeeping, accounting and auditing are among the top 15 occupations with the highest projected job growth over the decade to 2022 according to the U.S. Bureau of Labor Statistics.

Shares of Robert Half International (NYSE: RHI) have been under pressure since March 2015 as the market watches for a turn in the employment cycle on rising rates. While the employment picture may turn eventually, I expect the company to beat Q4 earnings expectations on the recent strength in the labor market. Robert Half books 80% of its sales in the United States with another 14% from continental Europe and the United Kingdom. 

Temporary and consulting services account for 76% of the firm’s sales. Both of which should do well as a tightening labor market allows the company to raise prices on services. The company’s Protiviti consulting division has started to pick up momentum with three consecutive years of 15%+ revenue growth and a widening operating margin. The segment only accounts for 13% of total revenue but is a synergy opportunity as it can draw from the staffing side of the business to complete projects.

Robert Half has booked 22 consecutive quarters of double-digit earnings per share growth on a year-over-year basis and has used that stability to return cash to shareholders. The board authorized an additional 10 million shares to the buyback program in October, on top of the 1.8 million shares remaining in the previous authorization. 

The company has repurchased 8.1 million shares over last five years, maintaining a roughly 60/40 split in shareholder cash return through buyback and dividends. Free cash flow has increased at a 13% annualized rate over the last three years. The company has $252 million in balance sheet cash and no debt.

Reporting Late January With Potential For A Strong Beat
Analysts are expecting the company to report income of $0.70 per share for Q4 when it reports the last week in January. That would be a 13% year-over-year EPS increase on expectations for a 7.3% increase in revenue to $1.3 billion. While analyst expectations on the quarter have only come down $0.01 over the last 90 days, sentiment has weakened considerably and the shares have fallen 16% just since the beginning of December.

The company has beaten earnings expectations by an average of 3% over the last two years, beating by 1.6% in the last two Q4 reports. Shares trade for 16.8 times trailing earnings, well under the five-year average multiple of 27.9 times earnings. Shares could reach my near-term target of $50 on a beat to $0.72 for the quarter and multiple expansion to 18.5 times earnings.

Risks to Consider: A tight job market will increase employer costs and could eventually lead to a turn in the employment picture. Take advantage of the potential for quick profits in Robert Half but the medium-term outlook may be limited.

Action to Take: Position for a bounce in shares of Robert Half International ahead of earnings as the company benefits from better-than-expected employment trends.

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