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Investing.com -- Randstad (AS:RAND) on Friday received an upgrade from Bernstein analysts, shifting to an "outperform" rating from "underperform” reflecting growing confidence in the company’s earnings trajectory and market position.
The revised price target has been set at €50 per share, up from the previous target of €37, suggesting an anticipated upside of approximately 34% from the current trading levels.
The upgrade comes as Bernstein analysts believe that the number of temporary workers employed by Randstad has likely hit its lowest point, with signs of improvement in key markets, particularly in North America.
Temporary staffing, which contributes around 70% of Randstad’s gross profit, is expected to lead any broader labor market recovery, with corresponding improvements in gross margins.
Market confidence remains mixed, but analysts point to multiple indicators suggesting a stabilization in demand. US Purchasing Managers’ Index (PMI) figures have been on an upward trend since October, and European PMIs have shown improvement since January.
Job postings on platforms such as Indeed have been stabilizing in major markets, including the US, France, Germany, and the UK.
Additionally, temporary staffing numbers in the US appear to have reached a bottom in October, while the ratio of US job openings to unemployment claims has been rising.
Bernstein’s base case scenario sees Randstad’s revenue declining by 2% year-over-year in 2025, largely due to lingering weaknesses in North American and Northern European markets.
However, they expect sequential improvements, aided by the company’s recent acquisition of Zorgwerk, which is estimated to contribute €25 million per quarter in revenue.
Currency fluctuations, particularly the appreciation of the US dollar relative to the euro, are also expected to have a slight positive impact.
The downgrade cycle appears to be coming to an end after a difficult period of earnings revisions.
Randstad’s fourth-quarter 2024 earnings report was weaker than expected, prompting further downward adjustments, but Bernstein believes that market expectations have now adjusted to more reasonable levels.
The company has faced two years of earnings downgrades, with its forecasted 2025 earnings per share having declined by about 35% since February 2023.
Despite this, Bernstein’s EBITA estimates for 2025 and 2026 are now approximately 3% above consensus forecasts.
Randstad’s valuation remains near historical lows, prompting Bernstein to revise its valuation model.
The brokerage is now applying a mid-cycle EV/net fee multiple of 2.2x, up from a trough multiple of 1.8x. This adjustment forms the basis for the new €50 price target.
Historically, Randstad’s share price has seen sharp recoveries following periods of downturn, such as during the post-financial crisis rally of 2009 and the recovery from the COVID-19 market crash, which saw the stock rise 250% and 110%, respectively, within a year.
The upgrade underscores a belief that risks are now skewed to the upside. In a bull case scenario, Bernstein sees the potential for Randstad’s share price to rise to €65, driven by stronger-than-expected economic momentum.
Conversely, in a bear case scenario, where economic conditions deteriorate further, the downside risk could take the stock to €28. The analysts view the probability-weighted outlook as favoring an upward trajectory.
Randstad’s relative positioning against peers such as Adecco (SIX:ADEN) also plays into Bernstein’s assessment.
Randstad has greater exposure to the North American market, where conditions appear to be improving, and a larger reliance on temporary staffing, which is expected to be the first segment to benefit from a labor market recovery.
While confidence in the broader economic environment remains cautious, the structural improvements in Randstad’s market positioning and a valuation near historical troughs make the stock an attractive opportunity at current levels.