Today’s recommendation provides business management solutions, and a one-time charge has created a buying opportunity in the shares.
Barrett Business Services (BBSI)
from BI Research
Barrett Business Services (BBSI) is a leading provider of business management service solutions, including payroll processing, employee benefits, workers compensation, human resources administration, risk management and work place safety programs for small and medium sized companies.
In other words they’ll come into your business and run those functions. Its 2,700 customers don’t have to inefficiently reinvent the wheel and can get back to the entrepreneurial activities most critical to their growth. Barrett also provides staffing services to help companies fill short term positions, contract staffing, onsite management and direct placement.
Barrett started off the year with a strong run to over $100, but then got its wings clipped when it announced that due to the latest calculations of its actuarial firm and other insights, it needed to increase its self-insured workers’ compensation reserve by about 5% or $5.1 million ($3.1 million after tax). That hit the income statement and tagged Q4 results for about $.42 a share. However while this drops Q4 EPS from what the company said would have been around $1.14 a share to about $0.74 (as reported February 5, 2014), it’s somewhat of a one-time hit regarding Q4 itself. The Company earned $.80 in the year ago quarter and analysts had been looking for $1.17.
Barrett also announced that it has signed on with ACE Group to satisfy California’s new requirement that the Company cannot continue to go the stand alone self-insurance route. Ace will basically provide assurance that if Barrett can’t pay claims, ACE will and also ACE will cover costs of any claims in excess of $5 million per claim.
While investor’s initial take on the $.42 charge was decidedly negative, I don’t see any systemic problem here. The shares have had a huge run and investors were used to Barrett handily beating estimates. So when, even excluding the one-time hit, BBSI guided to $1.13 - $1.15 vs. the consensus of $1.17, some investors hit the exit. Lost in that is this still represents a whopping 45% increase in actual EPS of $1.16 that was just reported for Q4! I see a buying opportunity here.
Tom Bishop, BI Research, www.biresearch.com, January 29, 2014