Human Resources Benefit Insperity

08/16/2019 5:00 am EST


Hilary Kramer

Editor, GameChangers

Insperity (NSP), known as Administaff prior to changing its name in February 2011, may not be a household name, but the company was a pioneer in Professional Employer Organization (PEO) services, explains Hilary Kramer, an industry-leading growth stock expert and editor of GameChangers.

PEOs provide comprehensive human resources (HR) services for their clients, which generally are small and mid-sized businesses. These services include the management of payroll and benefits, payroll tax filings and administration and regulatory compliance.

According to the National Association of Professional Employer Organizations (NAPEO), firms that work with PEOs grew 7% to 9% faster and have 10% to 14% lower employer turnover than doe firms who do not. A key reason is PEOs allow management to concentrate on core competencies.

Under a typical industry arrangement, the PEO becomes the co-employer of the workers. The client company pays the PEO a fee but in return the PEO remits wages and withholdings of the worksite employees and reports, collects and deposits employment taxes with local, state and federal authorities.

To help continue its growth, the company has expanded its services beyond the typical PEO offerings, many of which use game-changing analytics and big data technology.

The company has grown consistently throughout the past decade, with revenues rising from $1.97 billion in 2011 to $3.82 billion last year to mark an annual gain of 9.9%.

Operating income over the same period grew at an annual rate of 13.3%, as the company enhanced efficiently and was able to take advantage of its increased scale. The primary driver of this growth was a doubling in the number of employees serviced to 221,809 by year-end 2018.

The company’s stock sold off sharply following its latest earnings report, as worksite employees per month of 232,010 fell short of expectations of 232,500 to 234,500, partly due to tight labor markets slowing hiring at clients.

Guidance for future employee growth also was lowered by 1,000, and, as a result, the company took $0.06 off of the high of its earnings per share (EPS) range, as it now looks for 2019 EPS of $4.59 to $4.74, compared to previous guidance of $4.55 to $4.80.

I do not think the shares deserved to be sold off from above $140 prior to earnings, based on this slight change in guidance. However, the stock had rallied sharply all year. As we can see by the overall action of stocks recently, markets are fickle and nervous. However, if we can avoid a recession, and I still believe that is the case despite the growing trade fears, I believe Insperity will perform very well.

The company had an incredible 99% client retention rate last quarter, as it becomes more than a PEO, but a comprehensive business performance solutions provider as it rolls out more value-added services. This should drive continued growth. Buy NSP below $108. My price target is $135.

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