Shares of Insperity, Inc. NSP have declined 21.9% on a year-to-date basis against the 1.9% growth of the industry it belongs to.
Let’s delve deeper into the factors which have led to the company’s underperformance.
Lowered 2019 Guidance
Insperity lowered its 2019 guidance for adjusted EPS, adjusted EBITDA and average number of worksite employees (WSEEs).
The company now projects adjusted earnings in the band of $4.08-$4.20 per share (indicating growth of 9-12%) compared with the previously guided range of $4.59-$4.74 (which suggested growth of 22-26%).
Adjusted EBITDA is now anticipated to grow 3-6% to a range of $247-$253 million compared with the previously guided range of $278-$286 million (which indicated 16-19% growth).
Average WSEEs are expected to grow 12.7-13% to a range of 235,700-236,300 compared with the previously guided range of 237,350–239,500, indicating 13.5-14.5% growth.
Rise in Expenditures
Insperity continues to witness increase in expenses due to continuous investment in growth, technology, and product and service offerings. During the first nine months of 2019, adjusted operating expenses of $412.08 million increased 13% year over year. Adjusted operating expenses per worksite employee per month decreased 0.5% to $197, in the same time frame.
These increasing expenses are likely to keep the bottom line under pressure going forward.
Insperity operates in a highly fragmented and competitive professional employer organization (PEO) industry. Competition in this industry persists mainly in terms of quality of services offered, coupled with benefits associated with packaging and pricing. Additionally, the industry is exposed to relatively low level of market penetration. Also, PEO’s are heavily dependent on climatic conditions and market segments of the areas in which they operate.
Insperity primarily competes with the PEO divisions of large business services companies such as Automatic Data Processing, Inc. and Paychex, Inc., other national PEOs such as TriNet Group, Inc., payroll processors and human resources consultants, human resources technology solution companies, and large regional PEOs in certain areas of the country. Going forward, competition is expected to intensify as PEOs continue to expand nationally.
Zacks Rank & Stocks to Consider
Currently, Insperity carries a Zacks Rank #5 (Strong Sell).
Some better-ranked stocks in the broader Zacks Business Services sector are Global Payments GPN, Mastercard MA and Cardtronics CATM. While Global Payments sports a Zacks Rank #1 (Strong Buy), Mastercard and Cardtronics carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term expected EPS (three to five years) growth rate for Global Payments, Mastercard and Cardtronics is 17%, 15.9% and 4%, respectively.
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