Kelly Services Inc (KELYA)

[Emerging Growth]

Great Story on EmergingGrowth.com... President Obama signed the Affordable Care Act or Obamacare bill into law on March 23, 2010. However, most of the changes do not go into effect until 2014. One of the requirements in the law is if a company employs over 50 full time workers, then the company is required to provide health care coverage to its workers or face hefty penalties. Obviously, businesses are looking for ways around this law as providing costly health care will cut into earnings, along with the penalty fines. That is why we are seeing a rise in the temporary employment industry.

Businesses are able to hire temps for up to four months at a time. This means the company can still have as many workers and skate around the new Obamacare mandate. One temporary staffing company that will benefit is Kelly Services, Inc. (NASDAQ: KELYA).

Kelly Services has a market cap of $606 Million and currently holds a “buy” rating from analysts. The temp staffing company has a price to earnings of 9.5 and a forward price to earnings of 11.35. The company shows it is undervalued at current levels when you look at the PEG of 0.64, price to sales of 0.11 and price to book of 0.83. On top of that, Kelly Services has essentially no debt and pays out a 1.22% dividend. Earnings growth is predicted to be strong at 141% estimated for this year.

Fundamentally, Kelly Services is a very strong stock and even undervalued. However, the stock recently broke out of its trend at the beginning of December and has had quite a ride. While the stock is not necessarily overbought at current levels, it is definitely on the threshold. I would wait for a pullback before establishing a position.

As far as risks are involved, Kelly Services’ international business has been slow over the past year. Internationally, the economic crisis is still a problem and some countries are still cutting jobs rather than hiring. The good news for Kelly Services is the company exited out of some unprofitable contracts, rose prices and so far we are seeing these reconstruction efforts pay off. Additionally, temp employment is highly cyclical. This means temps are usually hired before regular employment as a recovery gains steam. Similarly, temps are the first to go in a downturn. As the recovery picks up steam in the US and worldwide, Kelly Services stands to profit nicely after positioning itself favorably.

The bottom line here is the recovery is good for temp jobs and with most of Obamacare going to full effect next year, businesses will be hiring temps to replace full time regular jobs to get around the health care coverage requirement. This alone will offset the sluggish international recovery, which is still in the early stages, particularly in Europe. Ultimately, Kelly Services looks very enticing on a pullback as a long term Obamacare play.

Full story here: http://emerginggrowth.com/emerging_growth_stock_picks/the-recovery-obamacare-and-the-rise-of-temp-employment-leading-to-the-benefit-of-kelly-services-inc-nasdaq-kelya/01/29/2013