Category: Economy

The Exponential Impact of Lowering Economic Activity

(Note: companies that
could be impacted by the content of this article are listed at the base of the
story [desktop version]. This article uses third-party references to provide a
bullish, bearish, and balanced point of view; sources are listed after the
Balanced section.)

When the economy shut down in response to virus containment concerns, tens of millions of workers were fired, furloughed, or faced salary reductions. Most of these jobs were held by lower-paying service workers who live paycheck to paycheck and now face tough spending decisions. Should they pay for groceries or medicine? Rent or clothing? The electric bill or the water bill? The government aid package will help for a while but is unlikely to fully offset the impact of lost wages. And, as rainy-day savings dry up, the effects of the shutdown are likely to continue long after the country has gone back to work. Below are several examples of secondary impacts of the shutdown.

Impact on Real Estate. The National Multifamily Housing Council estimates that 31% of U.S. renters did not pay April rent on time. That percent will most likely rise in upcoming months. In many areas, landlords are prohibited from evicting tenants, even if they could find judges to sign documents and sheriffs to accompany the eviction. The sudden drop in rental revenues will put a considerable strain on rental property owners who may struggle to make finance payments. The result could very well be a drop in real estate value.

Impact on Energy. Oil prices collapsed beginning on March 6^th when OPEC and Russia were unable to come to an agreement to reduce production. The inability to reduce supply soon became overshadowed by an expected drop in demand related to the Coronavirus. Bankruptcies of smaller, highly-leveraged producers are inevitable. This, in turn, will lead to pressure on the financial industry, which will face the prospect of loan defaults and the takeover of assets with questionable economics.

Impact on the Government. The government has already agreed to a stimulus package in excess of $2 trillion, which is on top of last December’s projected annual deficit of $1 trillion. With tax receipts now likely to come in below previous forecasts, the annual deficit will undoubtedly be higher. When all is said and done, it’s likely that the federal debt will have grown 50% in the last four years from a level near $17 trillion to $25 trillion. Other nations are facing similar outlooks.  With domestic GNP falling at the same time, it’s possible that the government stimulus could lead to bond rating downgrades.

Impact on Utilities. As customers fall behind on their utility bills, there will be a negative impact on the financial position of utilities. In theory, utilities could file to raise rates to recover these additional costs. However, doing so at a time when customers are facing additional hardships could prove unpopular.

Impact on the Entertainment Industry. The entertainment industry (restaurants, airlines, hotels, etc.) were among the first impacted by the virus, and the steps taken to contain the spread of the virus. The entertainment industry will rebound, but it is likely to be a slow rebound. Charles Dumas, the chief economist at TS Lombard pointed out, the human psyche takes time to heal. People who have become accustomed to social distancing are unlikely to suddenly start attending sporting events with tens of thousands of other people.

Impact on Retail. Malls are closed. Small shops have turned off their lights. Store have responded by pushing online sales and home deliveries. This has helped keep some revenue coming into the cash registers but may not be enough to pay the rent. Consumers are gaining a comfort level with buying more things online, and that won’t change when stores reopen. A shift toward online shopping that began years ago is likely to accelerate in the upcoming Christmas season. 

Almost all industries are likely to see some impact from the economic shutdown long after employees have returned to work. Some, such as the entertainment, energy, and service industries, have already felt the effects. Others, such as the real estate, utility, and finance industries, are just starting to feel the secondary effect of the impact on the first industries. Other industries, such as manufacturing, will feel lesser effects once plants are restarted, which is not to say things will fully return to normal. As disheartening as it is to say, the effects of the shutdown are likely to be felt for years after the shutdown has ended.

Suggested Reading:

Should
Equity Markets Close for the Pandemic

Unemployment,
How High can it Go?

Financial
Services During Social Distancing

Sources:

https://www.brookings.edu/blog/the-avenue/2020/03/16/for-millions-of-low-income-seniors-coronavirus-is-a-food-security-issue/, Annelies Goger, Brookings, March 16, 2020

https://finance.yahoo.com/news/coronavirus-fallout-onethird-of-americans-missed-rent-payments-in-april-135654889.html, Sarah Paynter, Yahoo Finance, April 8, 2020

https://finance.yahoo.com/news/saudi-u-russia-oil-deal-085717055.html, Christof Ruehl, Bloomberg, April 8, 2020

https://www.nytimes.com/2020/04/01/business/economy/coronavirus-recession.html, Peter Goodman, New York Times, April 1, 2020

Tuesday, April 7, 2020

CoreCivic (CXW)

Withdraws Guidance. How Safe is the Dividend?

CoreCivic is a diversified government solutions company with the scale and experience needed to solve tough government challenges in flexible, cost-effective ways. We provide a broad range of solutions to government partners that serve the public good through corrections and detention management, a growing network of residential reentry centers to help address America’s recidivism crisis, and government real estate solutions. We are a publicly traded real estate investment trust and the nation’s largest owner of partnership correctional, detention and residential reentry facilities. We also believe we are the largest private owner of real estate used by U.S. government agencies. The Company has been a flexible and dependable partner for government for more than 35 years. Our employees are driven by a deep sense of service, high standards of professionalism and a responsibility to help government better the public good.

Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Withdraws Guidance. Last week, CoreCivic withdrew its 2020 guidance due to the coronavirus impact, although the Company confirmed its 1Q20 guidance. We believe the most significant impact has been on ICE detainees and questions revolving around when or if the normal seasonal spike in detainees occurs this year. ICE accounted for 29% of revenue in 2019.


What If Matrix. Given all the uncertainty due to the virus, we performed a “What If” scenario for 2020. With 1Q20 confirmed, we basically are looking at the last 3 quarters. We assumed scenarios where revenue declined by $90 million, and operating and…

Click to get the full report.

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst
certification and important disclosures included in the full report. 
NOTE: investment decisions should not be based upon the content of
this research summary.  Proper due diligence is required before
making any investment decision. 

Tuesday, April 7, 2020

CoreCivic (CXW)

Withdraws Guidance. How Safe is the Dividend?

CoreCivic is a diversified government solutions company with the scale and experience needed to solve tough government challenges in flexible, cost-effective ways. We provide a broad range of solutions to government partners that serve the public good through corrections and detention management, a growing network of residential reentry centers to help address America’s recidivism crisis, and government real estate solutions. We are a publicly traded real estate investment trust and the nation’s largest owner of partnership correctional, detention and residential reentry facilities. We also believe we are the largest private owner of real estate used by U.S. government agencies. The Company has been a flexible and dependable partner for government for more than 35 years. Our employees are driven by a deep sense of service, high standards of professionalism and a responsibility to help government better the public good.

Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Withdraws Guidance. Last week, CoreCivic withdrew its 2020 guidance due to the coronavirus impact, although the Company confirmed its 1Q20 guidance. We believe the most significant impact has been on ICE detainees and questions revolving around when or if the normal seasonal spike in detainees occurs this year. ICE accounted for 29% of revenue in 2019.


What If Matrix. Given all the uncertainty due to the virus, we performed a “What If” scenario for 2020. With 1Q20 confirmed, we basically are looking at the last 3 quarters. We assumed scenarios where revenue declined by $90 million, and operating and…

Click to get the full report.

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst
certification and important disclosures included in the full report. 
NOTE: investment decisions should not be based upon the content of
this research summary.  Proper due diligence is required before
making any investment decision. 

Economic Aid Programs – A Gargantuan Experiment with only Modest Expectations

The coronavirus has had a devastating impact on the U.S. economy as companies have all but shut down to promote social distancing guidelines and government-mandated “stay-at-home” orders.  According to an article in the Wall Street Journal, at least one quarter of the U.S. economy has gone idle due to the coronavirus pandemic.  In March, U.S. employers shed 701,000 jobs: the worst month for job losses since the 2007-2009 recession.  The employment picture may get a lot worse depending on how long it takes to contain the virus and re-open the economy.  Including $350 billion for small business payroll protection grants, President Trump signed into law a $2 trillion stimulus package that includes sending checks directly to individuals and families, a major expansion of unemployment benefits, funds for hospitals and health care providers, financial assistance for small businesses and $500 billion in loans for businesses.  Additionally, the Federal Reserve cut the federal funds rate to a target of 0 to ¼ percent and pledged to use its “full range of authorities to provide powerful support for the flow of credit to American families and businesses.”  However, many are concerned that without proper oversight, the money may end up in the wrong hands or be used improperly.  After all, it seems that a stimulus bill would be most effective if it provided businesses with the incentive and funds to maintain payrolls through the duration of the crisis so workers could be made whole and have jobs to return to once the crisis has passed.  Will the government’s efforts at providing fiscal and monetary stimulus be effective?

Bulls:

The stimulus package is appropriately sized.  In an interview on CBS’s “Face the Nation,” James Bullard, the President of the Federal Reserve Bank of St. Louis stated that the $2 trillion stimulus package signed by President Trump was “well-sized for the situation.”  However, he thought that getting it to the right people represented a challenge.

Avoiding the appearance of corporate bailouts.  Rather then bailing out corporations, Congress appears to have taken a more direct approach to helping families and individuals.  For example, under the recently passed stimulus package, if a person lost their job as a result of COVID-19 and they qualify for unemployment insurance payments, they may be eligible for an additional $600 per week through state unemployment.  Additionally, taxpayers who filed a tax return in 2019 or 2018 will also receive a one-time check from the IRS subject to certain requirements and may also receive $500 for each qualifying child claimed as a dependent.

Keeping some dry powder.  While Congress and the Federal Reserve acted swiftly, it likely makes sense to adjust financial aid in response to evolving needs.  On April 3, House Speaker Nancy Pelosi told CNBC that she is calling for another bill to expand the provisions in the $2 trillion package Congress passed and wants to extend the provisions in the $2 trillion coronavirus relief package and is pushing for more small business loan funding, additional direct payments to individuals and the extension of enhanced unemployment insurance.  

Bears:

Employers are already reducing payrolls and furloughing
workers.  Despite significant fiscal and monetary stimulus, companies are reducing payrolls and furloughing workers.  While the stimulus package provides direct aid to individuals, it doesn’t replace the security of employment.

Implementation problems.  Already implementation challenges have arisen from large banks’ initial reluctance to participate in federally backed small business lending programs to individuals having trouble receiving economic aid in a timely fashion due to bureaucratic red tape.  Efforts need to be clearly communicated and resources marshalled to deliver benefits in a timely manner.

A matter of approach.  While the Federal Reserve and Congress have responded to the pandemic’s severe economic consequences, some question the method for saving the economy and maintaining employment.  During PBS NEWSHOUR on April 3, David Brooks of the New York Times stated that in Europe, the emphasis has been on providing funds to businesses on the condition that they maintain their payrolls so people don’t face the insecurity of unemployment and may return to their jobs.  In the U.S., the approach has been more individualistic by providing direct payments to individuals, up to $1,200, and unemployment insurance, along with a backstop measure which is $350 billion for businesses.  In Brook’s opinion, economic aid to businesses should be increased so payrolls can be protected.  

Balanced:

The coronavirus pandemic is taking a devastating toll on the U.S. economy and workforce.  Government and federal agencies are responding.  While some may question the amount of economic aid needed or the most effective method of delivery, the answer is likely unknowable at this point.  Therefore, a flexible approach is needed and one that encompasses the needs of businesses and individuals.  While Congress’ stimulus package is likely a first step, economic aid may need to be expanded over time.  A bipartisan approach with adequate oversight may help ensure a program that is sufficient in scope and effectiveness. 

Sources:

State
Shutdowns Have Taken at Least a Quarter of U.S. Economy Offline, The Wall Street Journal, Josh Mitchell, April 5, 2020.

White
House, Senate Reach Deal on $2 Trillion Stimulus Package, The Hill, Alexander Bolton and Jordain Carney, March 25, 2020.

Why
the Trump Administration Won’t Be Able to Make the Stimulus Work, Politico, Joshua Zeitz, April 4, 2020.

Top
Federal Reserve Official: Further Coronavirus Stimulus Bill May Not Be Needed, The Hill, Rebecca Klar, April 5, 2020.

‘It’s
Not Enough’ – Pelosi Wants More Small Business Loans, Direct Payments and
Unemployment Benefits, CNBC, Jacob Pramuk, April 3, 2020.

Analysis-U.S.
Stimulus Package is Biggest Ever, but May Not be Big Enough, Reuters, Lawrence Delevingne and Howard Schneider, March 30, 2020.

Big
U.S. Banks Start Accepting Small Business Aid Requests, Reuters, Imani Moise and Elizabeth Dilts Marshall, Reuters, April 3, 2020.

Shields
& Brooks, PBS NEWSHOUR, Judy Woodward and David Brooks, April 3, 2020.

Where Investors Found Double-Digit Growth in the First Quarter

(Note: companies that
could be impacted by the content of this article are listed at the base of the
story [desktop version]. This article uses third-party references to provide a
bullish, bearish, and balanced point of view; sources are listed after the
Balanced section.)

“People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare them out of the game.”- Peter Lynch

Twenty years ago today, the above quote was first published (April 3, 2000). The book, One Up On Wall Street: How To Use What
You Already Know To Make Money In The Market, was written by Peter Lynch. Lynch’s renowned credibility comes from having been the fund manager of the best performing mutual fund, Fidelity Magellan from 1977-1990. The wisdom and thought processes in these sentences and throughout his common-sense book written to help self-directed investors are as useful today as they were 20-years ago.

Size and the Impact on Price Moves

This best-seller also speaks of this reality, “Big companies have small moves, small companies have big moves.” This is true, but be warned, it is true on both the upside and the downside. During the first quarter of 2020, the performance for all major stock market indexes was down. This, of course, was exacerbated by the manmade slowdown in response to an unexpected deadly disease. When comparing Q1 2020 results of an index that aggregates large company performance versus an index that contains smaller companies this “big moves” reality, proves itself.  

The S&P 500, which is a market-cap-weighted index of the 500 largest U.S. publicly traded companies, was down 20% over the quarter. The S&P 600 which is a benchmark for small-cap companies was down 32.94% during the same period. This shows that the downmarket caused a larger move of the small-cap index of almost 13%. Mr. Lynch was correct.

Maintaining the same logic, among the gainers of the small-cap companies listed in the S&P 600, there should be greater gains than in the S&P 500 large-cap index. This expectation held true as well.

Supporting Data

While an investment in the top three performers in the small-cap index grew; 76.98%, 56.90%, and 55.75%, the best performer in the S&P 500 had growth of only 30.04%. The return places this large-cap top-performer eighth if it were measured among the S&P 600 companies. In fact, there is a total of 15 small-cap companies that rewarded holders with double-digit returns for the period. The large-cap index had only nine. So, Lynch’s advice holds true on both the winners and losers within the indices when measuring the magnitude of the gains and losses. This also demonstrates that investors looking for a better return (regardless of capitalization) have more potential selecting stocks, not buying an entire index. The largest opportunities for oversized gains and the largest returns Q1 were in small-cap stocks.  

S&P 600 Small-Cap
Index

The S&P 600 is a benchmark
index for small-cap stock defined as $450 million to $2.10 billion. This range
prevents overlap with the S&P 500.

Small-Cap 10%-Plus Gainers

The heightened awareness of the growing pandemic during the period certainly influenced company results. Almost all of the 15 stocks returning over 10%, included companies that stand to benefit from either an increased need for their product or service or speculation that they may benefit greatly. The industry categories of the big winners included: health, communications, internet, and one company that manufactures guns and ammunition. Many of the companies straddled two of these industries which could have added to their appeal. Examples of these include an online health information provider, an online pet pharmaceutical company, one of the telecommunications companies has a large wireless division, while the other has IT services and provides entertainment. The common thread, as one might expect, is that companies that are seeing more demand for their products (and can deliver) got investor attention.

S&P 500 Large Cap Index

The
S&P 500, is a stock market index that measures the stock performance of 500
large companies listed on stock exchanges in the United States.

Large-Cap 10%-Plus Gainers

As mentioned, the large-cap stocks have far fewer double-digit gainers compared to the small-cap companies, and the best performed less than half as well. Their business lines are similar to what was experienced in the smaller companies.  They include products or services where one might expect to see a sales uptick during the stay-at-home and wait-for-a-cure environment that we find ourselves in. This gainers also includes a “pure-play” in disinfectant products and containers, while another is a “pure-play” in-home entertainment.

As the quarterly earnings reports are made available, we will likely find most of these companies have experienced significantly higher dollar increases in revenue than the better performing small-cap winners. This shouldn’t equate to higher stock prices. As a percent of revenue, large-cap companies have a much higher growth hurdle. This is because with their larger size and market share it is harder to have a more impactful increase. Another reason large-caps don’t move as aggressively is that they are usually more diversified. Large companies often have many more business lines, this causes them to be less likely to experience explosive growth across all products. This also makes them more difficult for investors to understand. Two of the largest gainers in the large-cap index (a home entertainment company and home disinfectant giant) experienced their moves because their business concentration is both in demand and at the same time easily understood.

What to do in Q2

When the economy is business-as-usual and there is little disruption, the market is most efficiently priced. Finding value or finding the next big mover is much more difficult. Alternatively, when business is changing rapidly, opportunity exists for those paying attention and also have the confidence to act.

“Invest in what you know” is another quote attributed to Peter Lynch. He described this as meaning, “Use your specialized knowledge to home in on stocks you can analyze, study them and then decide if they’re worth owning.” We’re now in the second quarter, within each of our newly disrupted lives we are seeing many changes.  Some of what we’re seeing and doing will hold and become the new norm. Most should revert to what we had before. This creates opportunity with both the “new norm”  and with depressed businesses recovering to provide investors with above-average growth. 

Think about what will stick and what will change back after the pandemic is over. Weigh this alongside what you know and are seeing. For example, we’re seeing large quantities of stimulus which won’t be mopped up soon. When the crisis is over who will continue to prosper with the excess liquidity? Another obvious example is government spending on infrastructure, will it help government contractors to prosper.  Then ask, who are the smaller providers that will gain the most? Is there reason to believe the oil production deal between the Saudis and the Russians will fall apart? When the pandemic subsides, demand for oil will increase, how big is the current glut and how long does it usually take to turn the spigot back on? These are just examples of how to start. To get informed answers to your questions there are places to uncover expert unbiased analysis. Channelchek is one source that provides research by a team of fiercely unbiased veteran analysts. It’s a no-cost tool that covers many of the most CoVID-19 impacted sectors.

Peter Lynch once lamented, “People buy a stock and they know nothing about it,” he continued “That’s gambling and it’s not good.” During the second quarter of 2020, opportunities may be at their peak, develop your industry and company hypothesis, then research.

Registered users of Channelchek have free and unlimited access to small-cap research and industry reports. If you have not yet registered, you’re missing insights that could lead you to better portfolio performance. Register
now, it’s easy.

Paul Hoffman

Managing Editor

Suggested Reading:

Do
Market Scare Provide Uncommon Opportunity?

Exposure to these Sectors Could
Enhance Risk-Adjusted Return During the Recovery

Introduction to Channelchek

 

 

Sources:

One Up On Wall
Street, Peter Lynch (April 3, 2000)

Peter Lynch on
Volatility

S&P 600

Bloomberg

“HELP WANTED” Signs Replaced with “CLOSED” Signs at Record Pace

Initial jobless claims in the week ended March 21 soared to a record 3.3 million people.  This was by far the largest weekly claim at roughly five times the previous record in 1982 and roughly 16 times the rate of recent weeks.  Last week’s jump alone was enough to double unemployment rates to a level of almost 6%.  The cause for the increase, of course, was the Corvid-19 virus that led to an unprecedented shut down of the economy.  Many of the claim filers were workers in the travel and entertainment businesses.  However, as the effects of the virus continue, almost all industries will start to feel the effects of the shutdown.  Companies involved in manufacturing, retail sales, and the service economy have all begun announcing layoffs.  This has led many experts to speculate that initial unemployment claims for the week ended March 28 could be even higher when reported on Friday. 

How bad could next week be?

By most indications, last week was only the tip of the iceberg.  State-ordered shutdowns have spread since the week of March 21 and people have begun adhering to shutdown orders more stringently.  What’s more, companies that initially reacted by protecting their employees are now facing the grim reality that a drop in revenues must be countered by reducing costs.  Anecdotal evidence indicates that many states had difficulties processing the large number of claims.  Filers reported being on hold for days, making it likely that some gave up and will try again this week.  Pennsylvania, which reports claims daily, indicates that claims have continued to grow this week.  Other states such as Colorado and Oklahoma are reporting that claims are running two to three times that of last week’s.  Moody’s Analytics predicts initial unemployment claims could be 4.5 million this week.

And that’s not the
worse part …

Ben Casselman of the New York Times points out that unemployment numbers underestimate the overall impact because they don’t include people who are self-employed and ineligible for unemployment benefits.  There has been a large increase in the number of self-employed workers due to the creation of a gig economy in recent years.  It should also be noted that there is an accelerator effect associated with unemployment that will lead to future unemployment claims.  When businesses such as retail shut down, other business such as advertising become affected.  And, as unemployed individuals cut back on spending, all industries are affected.

How bad could unemployment get?

Treasury Secretary Steve Mnuchin, in pushing Congress to pass a stimulus package, warned that unemployment could soar to as high as 20% because of the effects of the Coronavirus.  The only time the unemployment rate has risen above 20% in modern American history was a four-year period during the height of the Great Depression.  His estimate now looks tame in comparison to more detailed studies.  Economist at the Fed’s St. Louis district believe 47 million people could lose their job, which would translate to an unemployment rate of 32.1%.  The estimate is based on 66.8 million workers being in occupations with a high risk of layoff.  James Bullard, President of the Federal Reserve Bank of St. Louis, estimates that $2.5 trillion in lost income in the second quarter noting that gross domestic product may fall 50%.

How about some good news …

The good news is that the cause of the rise in unemployment is clear and expected to go away at some point.  The return to normal will not be as sudden as the impact of the virus, but things will get better.  Individuals and governments are taking the virus more seriously and taking steps to contain its spread.  Companies are rushing to manufacture kits to identify people inflicted with the virus and ventilators to aid people suffering from the virus.  A vaccine for the virus will be tested this fall.  While steps to limit the spread of the virus are progressing, government has been very proactive in addressing the impact of the virus through fiscal and monetary stimulus.  The government passed a $2 trillion relief package and the Fed has authorized a $500 billion treasury purchase package.  The stimulus package should offset a drop in consumer and business confidence and help individuals and companies offset the impact of the virus in the short term.  Of course, it comes at a cost as the national debt will rise in excess of $3 trillion to a level nearing $25 trillion.

What does it all mean?

The economic impacts of Covid-19 are severe and likely to get worse.  The recovery will be slow and uneven.  A study by McKinsey describes five stages of the virus: 1) spread, 2) containment efforts, 3) health care treatment response 4) health care prevention response, and 5) emergence of herd immunity.  McKinsey indicates that experts believe that more than two-thirds of the population would need to be immune to contain the spread of a virus.  This can be done by developing an immunity naturally or developing a vaccine.  Development of a vaccine will have a big impact on whether an economic recovery take a v-shape, a u-shape, or a slow recovery with roller-coaster-like bumps on the way back up.  Meanwhile, companies making employment decisions face a stark reality.  They are seeing revenues and profits decline with no sense of certainty as to when they will return.  Companies may be able to weather losses for a short period but will have no choice but to reduce costs including employment costs if the effects carry into the summer. 

Suggested Reading:

How
Your Business Can Satisfy the Current Need for Content

CoVID-19
Where we are Right Now

Curbside
Financial Advisors

Sources:

https://www.kmov.com/news/unemployment-claims-could-reach-million-according-to-experts/article_70c07088-72e5-11ea-9f01-03ae8466f754.html, Anneken Tappe, CNN Business, March 26, 2020

https://www.cnbc.com/2020/03/30/coronavirus-job-losses-could-total-47-million-unemployment-rate-of-32percent-fed-says.html, Jeff Cox, CNBC, March 30, 2020

https://www.vox.com/2020/3/29/21198580/unemployment-insurance-claims-record, Matthew Yglesias, Vox, March 29, 2020

https://www.kcra.com/article/what-a-20-unemployment-rate-would-mean-for-america/31746821#, Show Transcript, KCRA Television.

https://www.bloomberg.com/news/articles/2020-03-22/fed-s-bullard-says-u-s-jobless-rate-may-soar-to-30-in-2q, Steve Matthews, Bloomberg, March 22, 2020

https://www.mckinsey.com/business-functions/risk/our-insights/covid-19-implications-for-business, McKinsey, March 2020

The ”Coronavirus Economy,” will Washington “Go Big?”

The health of the U.S. economy depends on in-person interactions among its citizens. Additionally, as a major global trading partner, it also relies on overseas economies with which to transact. At an increasing pace, over the last month, our trading partners have brought the pace of commerce down significantly. Both internally and externally, all “non-essential” transactions are at a crawl. In just the past two weeks, the subject of the coronavirus has gone from the punchline of jokes at the office watercooler to the reason people no longer use the office water cooler.  There is now a semi-mandatory freeze on interacting with our co-workers, friends, neighbors, and service industry workers. We have brought the U.S. economy from its “90 mph pace” in February to a mid-March standstill. Unlike other slowdowns, we’re not out of gas. So, what can be done?

Sedate or
Stimulate?

The lack of transactions (economic activity) has been orchestrated and to one degree or another required. We are now in the midst of economic malaise. In the past, the tools for fighting economic malaise was lead by a targeted approach to cause banks to lend more, companies to hire more, or people to spend more. In the current situation it would seem that stimulus while forcing people and businesses to be less than simulative, is a lost cause.

The two opposing forces could turn out to be more costly than effective. The Federal Reserve Bank has slashed overnight bank lending rates to near zero over just a few weeks. Lower rates is their tool used to accelerate lending and the accompanying economic activity as it promotes increased spending and investment. It also helps, at least initially, banks who improve their profitability because they now have access to a cheaper cost of money against higher interest rate loans. The likelihood that slashing Fed funds to near zero will have the same impact as in the past seems very low. We are being incentivized to spend while urged to hunker down.

At the same time that the Fed announced its second rate cut of the year (only nine days after a very strong employment report), they also announced additional actions, which included buying $500 billion or more of U.S. Treasuries. Along with the Treasuries, they said they would purchase Federal agency mortgaged back securities totaling over $200 billion or more. The positive effect of the Fed buying securities in the open market on a wholesale level is twofold. First, it adds cash, in this case, over $700 billion, into the economy. Putting cash into the market in this way is the simulative practice dubbed quantitative easing during the 2008 financial crisis. Secondly, it lowers interest rates even further in that it dramatically increases demand on longer-term securities. The lower rates are intended to reduce the cost of money, allowing individuals and companies to borrow (and therefore spend) at a lower rate. Not unlike cutting Fed Funds, it is to promote activity — Activity that we are restricted or discouraged from taking part in. At the same time, it creates another problem, senior citizens, the age group expected to be most at risk to the coronavirus, depend on income generated from CDs and fixed income securities. The impact of the health crisis, especially to older people, and the reaction, has created another cause for problems to older people, income.

Old
Habits

Reason suggests that trying to sedate activity while at the same time stimulating it is like washing melatonin down with Red Bull to get a good night of rest. Both seem to work against each other. The government reaction to economic headwinds has always been to stimulate using the methods described above. This new problem has a completely different set of circumstances. The economy was breaking records in many categories just weeks ago. Yet now, the likelihood of a recession (two or more consecutive quarters of negative GDP) seems unavoidable. Under most predictions related to the guidance to minimize interacting with others, we will be crawling into mid-Summer.

The latest plans being discussed in Washington are also being called stimulus plans. Using “stimulus” to describe them may be out of habit, or to try to get them passed, but they are not intended to fire up the economy. Instead, the intention is to help bridge the needs of households until we can all get back to work. If government help is needed, bridging the gap and tending to the health issue until people can begin consuming again is a useful response.

Going Big
on a Bridge Plan

 President Trump is determined to lead the country out of the health crisis while minimizing damage to citizens and the businesses that employ them. He had been discussing the idea of a payroll tax cut with his advisors. The payroll tax cut would help small businesses and individuals as long as the businesses remained open. This doesn’t help businesses that are not open. The people and businesses that will be most hurt by the dramatic downshift of the economy will be those without pay or payroll because they’re idle. Even companies that are open, with reduced business and workers with reduced wages, would have a long wait for the benefit of any payroll tax cut.

It was just announced that taxpayers have been given the flexibility of delaying 90 days to pay their taxes to the IRS. The White House has also asked for legislation to include support for small businesses and aid to the airline industry, and other measures for industries hurt by the slowdown. As it relates directly to households, U.S. Treasury Secretary Steven Mnuchin said they plan to put money in people’s hands now. His exact words are: “And when I say now, I mean in the next two weeks, not six to eight months under tax relief.”

The most recent plan being discussed in the Senate and the Administration is a package from $1 trillion to $1.2 trillion which would include cash payments, loan guarantees, and a host of “kitchen sink” items designed to bridge business and their workers to the other side of this crisis. One of the most talked-about items on that list is a one-time payment of $1,000 to workers directly from the U.S. Treasury.

While we
Wait

Anyone in Washington delaying a plan that will help relieve people who are rightfully concerned for their financial security risks losing the next election. This is a time of national crisis, and there seems to be more of an air of unity, with only mild positioning.  With this, we should begin to see “bridging” actions put into play.

For those stuck at home, finding your own way to bridge the gap before returning to your normal work environment, being as productive as possible will help. Strengthening your own infrastructure, whether that means Spring cleaning, or setting up an efficient home office will help your productivity now, and on the other side of the crisis.

If you own or are with a company that is still open but not at capacity, this may be the time to build on your own infrastructure. Look at the improvements that you can make to slingshot back up to speed when we are passed this. Depending on your business, a marketing plan may be in order to stay in front of customers and investors throughout. Your competition may be distracted by news events; this could be the best time to move forward and come out ahead

Suggested
Reading:

Bear Market Cycles, is it Different
this Time?

ZIRP and QE5

 

Sources: https://www.washingtonpost.com/us-policy/2020/03/17/trump-coronavirus-stimulus-package/

https://www.bloomberg.com/news/articles/2020-03-17/mnuchin-says-trump-wants-money-sent-to-americans-in-two-weeks

Will Interest Rates Test Negative for Coronavirus

With only three days until the scheduled FOMC meeting on March 17-18, The Fed decided it should not wait to lower a key interest rate. On Sunday afternoon, Federal Reserve Chairman Powell announced they’d now target a range of 0%-.25% on overnight Fed Funds.  The cut is a full 1% drop by the Fed which had just lowered rates .50% two weeks earlier. Rate cuts in-between FOMC meetings are rare and considered aggressive.  The reason expressed was reduced global and domestic economic activity brought on by actions taken to combat the threat of COVID-19.

To further help an economy that is slamming on the brakes, the Fed announced it would boost its holdings of U.S. Treasuries by at least $500 billion and its agency and mortgage-backed securities by at least $200 billion in the coming months. This signals a resumption of the U.S. Central Bank’s policy of quantitative easing.

During the announcement, Powell had this to say:  “We do know that the virus will run its course and that the U.S.
economy will resume a normal level of activity. In the meantime, the Fed will
continue to use our tools to support the flow of credit.”

 

Considerations
After the Announcement:

-The Fed may be adopting the long-lost policy of adjusting monetary policy in-between FOMC meetings.

-With inflation running at 2.3% for the 12 months ending February 2020 and Treasury rates through 30 year maturities yielding less than 1%, real interest rates are now negative for savers. The bond  markets may even push some maturities below zero.

-During the second quarter, M&A activity may heat up in this low rate, low valuation, comfortable balance sheet climate.

-Gold, which tends to trade higher during periods of uncertainty, has been rallying for weeks. This weeks rate cuts may push gold prices higher still as the strongest argument, historically, against holding gold over currency, is it doesn’t earn interest. 

It appears the Fed is acting with all the resolve they did to battle the 2008 financial crisis. Sunday’s Fed announcement took place one day before leaders from the Group of Seven nations, including the U.S. President, have planned to discuss their pandemic response on a conference call. Below are the Central Banks within the G-7 that have already  taken action on behalf of their economies.

 

 

 

 

News of economic stimulus, including securities purchases and lower rates, will be among top stories in the news Monday through Wednesdays as more official announcements and assessments are expected.

Suggested
Reading:

Gold’s Appeal is Driven by more than Coronavirus Fears

Does the Fed Have the Tools to Beat Forecasted Weakness?

The Economic Symptoms of Epidemics Have Been Felt Before

 

Sources:

https://www.newyorkfed.org/markets/opolicy/operating_policy_200315

https://www.bloomberg.com/news/articles/2020-03-15/fed-cuts-main-rate-to-near-zero-to-boost-assets-by-700-billion?srnd=premium

Will Interest Rates Test Negative for Coronavirus

With only three days until the scheduled FOMC meeting on March 17-18, The Fed decided it should not wait to lower a key interest rate. On Sunday afternoon, Federal Reserve Chairman Powell announced they’d now target a range of 0%-.25% on overnight Fed Funds.  The cut is a full 1% drop by the Fed which had just lowered rates .50% two weeks earlier. Rate cuts in-between FOMC meetings are rare and considered aggressive.  The reason expressed was reduced global and domestic economic activity brought on by actions taken to combat the threat of COVID-19.

To further help an economy that is slamming on the brakes, the Fed announced it would boost its holdings of U.S. Treasuries by at least $500 billion and its agency and mortgage-backed securities by at least $200 billion in the coming months. This signals a resumption of the U.S. Central Bank’s policy of quantitative easing.

During the announcement, Powell had this to say:  “We do know that the virus will run its course and that the U.S.
economy will resume a normal level of activity. In the meantime, the Fed will
continue to use our tools to support the flow of credit.”

 

Considerations
After the Announcement:

-The Fed may be adopting the long-lost policy of adjusting monetary policy in-between FOMC meetings.

-With inflation running at 2.3% for the 12 months ending February 2020 and Treasury rates through 30 year maturities yielding less than 1%, real interest rates are now negative for savers. The bond  markets may even push some maturities below zero.

-During the second quarter, M&A activity may heat up in this low rate, low valuation, comfortable balance sheet climate.

-Gold, which tends to trade higher during periods of uncertainty, has been rallying for weeks. This weeks rate cuts may push gold prices higher still as the strongest argument, historically, against holding gold over currency, is it doesn’t earn interest. 

It appears the Fed is acting with all the resolve they did to battle the 2008 financial crisis. Sunday’s Fed announcement took place one day before leaders from the Group of Seven nations, including the U.S. President, have planned to discuss their pandemic response on a conference call. Below are the Central Banks within the G-7 that have already  taken action on behalf of their economies.

 

 

 

 

News of economic stimulus, including securities purchases and lower rates, will be among top stories in the news Monday through Wednesdays as more official announcements and assessments are expected.

Suggested
Reading:

Gold’s Appeal is Driven by more than Coronavirus Fears

Does the Fed Have the Tools to Beat Forecasted Weakness?

The Economic Symptoms of Epidemics Have Been Felt Before

 

Sources:

https://www.newyorkfed.org/markets/opolicy/operating_policy_200315

https://www.bloomberg.com/news/articles/2020-03-15/fed-cuts-main-rate-to-near-zero-to-boost-assets-by-700-billion?srnd=premium

Black Swans, Falling Knives, and Market Corrections

(Note: companies that
could be impacted by the content of this article are listed at the base of the
story [desktop version]. This article uses third-party references to provide a
bullish, bearish, and balanced point of view; sources are listed after the
Balanced section.)

The word “correction” has been used more than usual on CNBC and other business news programs this week.  At first, it seemed to make sense; after all, on Monday, the S&P 500 dropped by 3.4%. Then on Tuesday, it shed another 3.03%. By the market close on Tuesday, the broad index was down a total of 7.6% from its all-time high – the all-time high was less than a week earlier!

After a 28.9% run-up in value through 2019, then occasional pauses for significant events such as the exchange of fire between the U.S. and Iran, we continued to experience equities breaking new ground as buyers’ optimism remained high. A quick Google search uncovers stories from most major outlets that report on the stock markets wrote an article warning of the “The Next Correction” or “How to Recognize a Correction” over the last six months. Ignoring these warnings, the market continued to trade higher.

The trend toward higher levels seems to have finally been derailed. But, the word “correction” as it has been used historically, may not fit the dramatic shift in direction the past few days. The market move is much more likely to fall in the category of a “black swan event.” The distinction is worth understanding in that the reasons for the decline in market prices are different. It’s important to understand the nuances as the recovery from each is different. 

Black
Swan

Among waterbirds, black swans are known to be erratic and nomadic. The term “black swan event” was adopted by the business world to refer to events that are extremely rare and produce a dramatic impact. The occurrences generally fall into the unforeseen category. Investors with an eye toward risk, manage assets with the knowledge that black swan events cannot be forecast. Although with almost every black swan event there are people who say they saw it coming, or in hindsight, try to figure out how to forecast the next time the same situation will happen, in most cases, the events are “one-offs” that are a combination of factors that will never occur again.

An Example of an event that helps define this category is the meltdown of the hedge fund Long-Term Capital Management (LTCM) in 1998. This black swan event almost brought the global financial system with it. Others include the dot-com bubble of 2001 and the financial crisis of 2008. These are pure examples in that they were sudden and unforeseen as to timing and impact.  Another example used quite often is the attacks on the U.S. on Tuesday, September 11, 2001. Both the NYSE and the Nasdaq did not even open that day and stayed closed until Monday, September 17^th. This was the longest shutdown of the exchanges since 1933. On the reopening of the NYSE, the DOW fell 7.1% setting a record for the largest one-day loss in history. By Friday of that week, it had declined by 14%. The unforeseen circumstance erased $1.4 trillion in stock U.S. stock market value in five trading days.

Stock market recoveries from black swan events are as different and uncertain as to the events themselves. The sell-offs are not part of the regular market “price-discovery” push and pull. The quick reaction to the uncertainty of a new situation is typically severe. Then, once enough light is shed on the “new” situation allowing the market to evaluate the possibilities, it typically acts “rationally.” One month after September 11, 2001, the S&P, Nasdaq, and Dow had recouped all of their losses — A 16.28% increase within 30 days.

Correction

The term “correction” is a market term for sell-off as a reaction to excess. Although most market participants don’t enjoy corrections, they are considered healthy. They are painful yet beneficial, not unlike a brush fire that prevents a wildfire, or the diet that one goes on after eating too much during the holidays, or even the paying down of charge cards after returning from an elaborate vacation. A stock market correction serves to pair the lofty gains accumulated in stocks from greed or speculation that got a bit ahead of itself. Without occasional sell-offs that become corrections, the market would be at a higher risk of a larger crash.

Corrections are often predicted by technical or fundamental market analysts. Using either of these analytical methods, predictions of turning points, and too much market strength are made. A common definition of a market correction is a decline of 10% or more in price movement. This decline is seldom all at once, so market participants have time to evaluate whether they think the market is in a correction stage. There’s a warning. As it declines, some will take money out, while others will view it as an opportunity to buy at lower prices. If the sellers exceed the buyers, prices generally decline until that imbalance reverses. If the market is down 10% or more, it is then that the writers of history will “officially” label the period a correction.

The
Difference Between a Black Swan Event and Correction is Important

Black Swan events are not corrections. If a forest has a brush fire that burns off leaves and twigs, thereby reducing the “fuel” that could lead to a devastating blaze, then the fire lowers the risk of an uncontrollable fire. Brush fires are expected and are somewhat cyclical. The brush fire is not unlike a market correction. If the same forest is unexpectedly in the path of lava from a volcano which suddenly erupts, that is similar to a black swan event. Unexpected events have unexpected length and duration.

COVID-19 (coronavirus) and its impact on stocks is not part of the normal market cycle. It was not foreseen and has had a sudden and large impact on market direction. This fits the definition of a black swan event. With the market reaching higher highs the previous year, there were many who were calling for a correction. This may be why so many are currently referring to what has happened in the past couple of days as a correction.

Recovery from a correction is not predictable, but far more predictable than a recovering from a black swan event. After September 11, the markets were closed for six days, and no one had any idea at what price level they would open or trade when they did. This type of event had never happened before so there was no history to assess and project the future. The COVID-19 event can be likened to Sept. 11 in that it has very little similarity to anything that has happened before. 

The virus has severely impacted the Chinese level of economic activity, yet we don’t have a good read on what is really happening there. We don’t know if it will continue to spread if a cure for the sick or a preventative will be found effective, we don’t know if it will fade as viruses before it have or mutate into something deadlier. There is not enough information for the market to feel comfortable enough to make a forecast with enough conviction to act. Once some answers are found, early buyers are likely to set the tone for higher prices.

Falling Knives

Until there is more clarity, there is not likely to be a large retracing of market losses. There is a Wall St. axiom, which says, “don’t try to catch a falling knife.” This warns against buying when the market has significant downward momentum. The chance of your catching it just right is low compared to the chance of your getting hurt. It’s too dangerous.

Like most Wall Street axioms, there is an equal and opposite axiom. This, presumably, is what makes markets. The alternative advice suggests, “buy low sell high.” In real terms, if you liked the S&P last Thursday as it was breaking new highs, you should love it today while it’s 7.6% cheaper.

Investors of safe-haven stocks such as those tied to the price of gold and other precious metals have historically done well during shocks to the other markets. Many investment advisors aim to reduce risk by diversifying their client portfolios. Part of this protection involves allocating a percent of the portfolio to invest in gold and gold mining companies.  Gold soared following September 11. On Monday of this week, the price of gold surged to its highest level since February 2013. It’s easy to see how stocks uncorrelated to the broader markets belong in portfolios that seek to protect themselves from unforeseen shocks.

Applicable to the current black swan event, another, albeit lesser-known bit of Wall Street wisdom was once uttered by Wall Street icon Art Cashin. He said, “Never bet on the end of the world. It only happens once.”

 

 

Suggested
Reading:

Containing Coronavirus has Caused an
“Oil Demand Shock”

Is the Market Disregarding Earnings
Results?

The Economic Symptoms from Epidemics
Have Been Felt Before

Sources:

Everyone seems to be
bullish on the stock market right now. Here’s what could go wrong

Wikipedia Black Swan (Cygnus
atratus)

Long-Term Capital Management (LTCM)

Dot-Com Bubble

How September 11
Affected The U.S. Stock Market

Falling Knife

Is the Triple-Tax Break for “Opportunity Zone” Investing Worthwhile?

In 2017, Congress passed the 2017 Tax Cuts and Jobs Act.  Since the tax act passed, more than 500 qualified OZ funds have opened.  The fund’s popularity seems to be growing with some $2 billion of $6.7 billion invested in December alone.  As a rule, 90% of a fund must be invested in one of 8,700 qualified opportunity zones and receive at least 50% of the gross income from the zone.  Most of these funds are run by money managers and/or real estate developers. 

The funds allow investors to defer capital gains tax from stocks, real estate or other investments by rolling over the proceeds into an Opportunity Zone (OZ) fund that invest in low-income communities.  In addition to deferring capital gains taxes, investors may be able to reduce their cost basis and eliminate capital gains on any increase in value during the fund’s life.  Sound too good to be true? As you would expect, there are negative aspects associated with the funds, specifically high management costs and a loss of liquidity.  Still the funds may be worth considering for wealthy investors.

The Positive

Capital Gains are deferred.  Investors can defer federal capital gains tax by putting it into an OZ fund.  The funding investment could have been almost anything including stocks or real estate.  If the investor invests in the OZ fund within 180 days of the asset sale, he will be allowed to defer the payment of capital gains tax until the time the investment in the OZ fund is sold or until December 31, 2026.  Note that if the fund dissolves, capital gains will become due.  With the market near all-time highs, many investors would like to diversify away from the stock market or individual stocks that have performed well and become a larger part of their portfolio.  Investors may feel trapped into holding the stock because of large capital gains.  OZ funds allow the investor to exit the stock without large tax payments.  Investing in an OZ fund may also make sense for investors selling a real estate property with large capital gains who want more diversity than utilizing a 1031 exchange to purchase another real estate property.

Cost basis is reduced over time.  In addition to deferring an investment’s capital gains tax, investing in an OZ fund may even lower the tax.  Investors who hold the fund for five years get a 10% reduction on the capital gain.  If they hold the fund seven years, the reduction will increase to 15%.  However, the tax benefits end December 31, 2026 whether the investor has sold its ownership in the OZ fund or not.  Therefore, investors must invest in an OZ fund by December 31, 2021 to get the 10% reduction.  Investors must have already invested in the fund to qualify for the full exemption.

Capital gains of the fund may be eliminated.  As a final incentive, investors who invest in an OZ fund and hold it for ten years will get an additional tax benefit.  Any gain in the investment in the fund is tax free.  This is true even if the fund is sold after December 31, 2026.  So, for example, if an investor puts $5 million into a fund in 2020 and sells it in 2031 for $12 million, he will escape paying capital gains tax on $7 million.  He will have paid capital gains tax on December 31, 2026 for the capital gains from the initial investment that was deferred.

 

The Negative

Management costs are high.  The fee structure of an OZ fund is comparable to that of a hedge fund.  Typically, investors pay 1.5%-2.0% in expenses and 20% of any excess return over a designated return (6-10%). 

Investor must be accredited investors.  To qualify to invest in a fund, investor must have a net worth of $1 million (excluding primary residence) or have two consecutive years of at least $200,000 in annual income ($300,000 for joint filers).  Investors in OZ funds can invest in a fund only one time to defer capital gains tax, and the investment can’t exceed the proceeds from the sale of the original investment.   

There is a loss of liquidity associated with the funds.  Some funds require investors to hold their investment a full ten years.  Others allow investors to sell their investment in an OZ fund at any time.  Doing so, however, will often mean forfeiting tax breaks.  OZ funds should be viewed as a long-term investment with a time window of at least five years.

Short management track record.  OZ funds have been in existence for only three years.  As a result, the managers of these funds do not have a long track record on which an investor can make comparisons.  Many of these managers are long-time real estate managers who have been successful.  Others are not.  Investor should become familiar with a fund’s management team to decide if the large fees are justified.

 

Big Picture

Like most investments, there are positives and negatives associated with investing in an Opportunity Zone fund.  OZ funds offer a great way to defer and possibly avoid taxes.  On the other hand, the funds have large management fees and require long holding periods.  Investors should become familiar with the details of any OZ fund before considering an investment and consult their financial advisor and tax consultant to determine if the fund is appropriate for the investor.

 

https://www.institutionalinvestor.com/article/b1fjptxryzv07y/Is-Anyone-Actually-Investing-in-Opportunity-Zone-Funds, Alicia McElhaney, Institutional Investor, May 23, 2019

https://www.kiplinger.com/article/investing/T041-C000-S002-opportunity-zone-investing-is-it-for-you.html, Ryan Ermey, Kiplinger, June 5, 2019

https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions, IRS

https://smartasset.com/investing/opportunity-zone-funds, Ashley Chorpenning, Smartasset, January 27, 2020.

https://www.fool.com/millionacres/taxes/complete-guide-real-estate-opportunity-zones/, Liz Brumer-Smith, millionacres

Friday, February 14, 2020

Kelly Services Inc. (KELYA)

Can the New Growth Plan Work?

Kelly Services Inc is a provider of workforce solutions and consulting and staffing services. The company’s operations are divided into three business segments namely Americas Staffing, Global Talent Solutions (“GTS”) and International Staffing. It provides staffing solutions through its branch networks in Americas and International operations and also provides a suite of innovative talent fulfilment and outcome-based solutions through GTS segment. Americas Staffing generates maximum revenue from its operations.

Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

New Growth Strategy. New CEO Peter Quigley is rolling out a new, aggressive organic and inorganic growth plan to build a sustainable and profitable specialty talent solutions provider. We believe Kelly has the means, capability, and opportunity to successfully implement the plan.

4Q19 Results.  Fourth quarter results were mixed. Revenue fell short of expectations due to ongoing softness in select U.S. niches, continued disruption from the early 2019 restructuring of U.S. operations, and economic headwinds in Europe. However, better mix lead to improved gross margin and…

Get the full report on Channelchek desktop.

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst
certification and important disclosures included in the full report. 
NOTE: investment decisions should not be based upon the content of
this research summary.  Proper due diligence is required before
making any investment decision. 

Friday, February 14, 2020

Kelly Services Inc. (KELYA)

Can the New Growth Plan Work?

Kelly Services Inc is a provider of workforce solutions and consulting and staffing services. The company’s operations are divided into three business segments namely Americas Staffing, Global Talent Solutions (“GTS”) and International Staffing. It provides staffing solutions through its branch networks in Americas and International operations and also provides a suite of innovative talent fulfilment and outcome-based solutions through GTS segment. Americas Staffing generates maximum revenue from its operations.

Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

New Growth Strategy. New CEO Peter Quigley is rolling out a new, aggressive organic and inorganic growth plan to build a sustainable and profitable specialty talent solutions provider. We believe Kelly has the means, capability, and opportunity to successfully implement the plan.

4Q19 Results.  Fourth quarter results were mixed. Revenue fell short of expectations due to ongoing softness in select U.S. niches, continued disruption from the early 2019 restructuring of U.S. operations, and economic headwinds in Europe. However, better mix lead to improved gross margin and…

Get the full report on Channelchek desktop.

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst
certification and important disclosures included in the full report. 
NOTE: investment decisions should not be based upon the content of
this research summary.  Proper due diligence is required before
making any investment decision.