Today S.A. Advisory Editor William Velmer introduces his new Top Pick for the second half of 2013.
“Command Center, Inc. (CCNI, OTC) provides flexible, on-demand employment and staffing solutions to businesses nationwide through a network of more than 58 brand stores. During 2012, CCNI provided employment for 35,500 team members that worked 5.5 million hours for over 3,400 clients.
“Temp service companies have benefitted tremendously during the recession and now because of Obamacare implementation. Many companies, in order to avoid buying their employees healthcare, are opting for temp workers because of cost burden, over-regulation and looming job-killer Obamacare.
“CCNI has shown robust revenue and earnings growth during the past couple of years. For 2011 and 2012, respectively, revenue equaled $82 million and $98 million and income/share was $0.015 and $0.025 (61.3 million and 63.3 million diluted shares).
“The public staffing companies—Kelly Services (KELYA), Manpower (MAN), Robert Half International (RHI), Trueblue (TBI), On Assignment (ASGN) and Korn/Ferry International (KFY)—sport an average P/E of 24. CCNI currently sports a trailing 7.5 actual P/E.
“We believe that, because of dramatic managerial and other corporate overhead reductions, much lower debt expense and the elimination of low margin business, CCNI will earn at least $0.08/share for 2013.
“Historically, the third quarter is the strongest, followed by the second, fourth and first. If we assign an estimated P/E of 24 (share price equals $1.92) and reduce the P/E estimate to 12 (share price equals $0.96) and then reduce that by one third, we calculate a share price of $0.62. This is still 200% above the current share price of $0.20.
“We believe that CCNI, besides being fundamentally extremely cheap and undervalued, is also an attractive takeover candidate with huge premium potential. The average PSR of the industry group above is around 80% of sales, while CCNI trades at only 10% of sales. CCNI could easily be worth $0.80-$1.00—300%-400% above current levels!
“Fact: Nearly 20% of all jobs gained since the recession have been temporary! The second-largest employer behind Wal-Mart (WMT) is Kelly Services (KELYB), a temporary work provider.
“CCNI also offers exposure to the oil and gas regions in North America. They have four high traffic offices in the Bakken (North Dakota), four in the Eagleford area (Texas) and exposure in the Marcellus Shale region (Appalachian Basin).
“Bottom line: CCNI is fundamentally super cheap with upside potential of 200%-400% and almost zero downside risk. The organic growth ingredients are only getting stronger because of changing hiring practices and the looming Obamacare disaster. We have new management, lean and mean operations, takeover potential and it’s trading near its 52-week low. We rate CCNI with a very strong BUY at current levels. If we are right, you may not need a job!”
William Velmer, S.A. Advisory, www.saadvisory.com, 801-272-4761, July 2013