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Resources Connection, Inc. (RGP) Soars to 52-Week High, Time to Cash Out?

Have you been paying attention to shares of Resources Connection (RGP)? Shares have been on the move with the stock up 3.8% over the past month. The stock hit a new 52-week high of $23.18 in the previous session. Resources Connection has gained 20.3% since the start of the year compared to the -19% move for the Zacks Business Services sector and the -16.2% return for the Zacks Staffing Firms industry.

What's Driving the Outperformance?

The stock has an impressive record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on July 28, 2022, Resources Connection reported EPS of $0.67 versus consensus estimate of $0.41.

For the current fiscal year, Resources Connection is expected to post earnings of $1.59 per share on $822.31 million in revenues. This represents a -28.38% change in EPS on a 2.15% change in revenues.

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Valuation Metrics

Resources Connection may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.

On this front, we can look at the Zacks Style Scores, as these give investors a variety of ways to comb through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.

Resources Connection has a Value Score of A. The stock's Growth and Momentum Scores are C and F, respectively, giving the company a VGM Score of B.

In terms of its value breakdown, the stock currently trades at 13.5X current fiscal year EPS estimates, which is a premium to the peer industry average of 11.7X. On a trailing cash flow basis, the stock currently trades at 9.5X versus its peer group's average of 9.2X. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.

Zacks Rank

We also need to consider the stock's Zacks Rank, as this supersedes any trend on the style score front. Fortunately, Resources Connection currently has a Zacks Rank of #2 (Buy) thanks to rising earnings estimates.

Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Resources Connection meets the list of requirements. Thus, it seems as though Resources Connection shares could still be poised for more gains ahead.

How Does RGP Stack Up to the Competition?

Shares of RGP have been soaring, and the company still appears to be a decent choice, but what about the rest of the industry? One industry peer that looks good is KornFerry International (KFY). KFY has a Zacks Rank of # 2 (Buy) and a Value Score of A, a Growth Score of A, and a Momentum Score of D.

Earnings were strong last quarter. KornFerry International beat our consensus estimate by 11.46%, and for the current fiscal year, KFY is expected to post earnings of $6 per share on revenue of $2.76 billion.

Shares of KornFerry International have gained 12.2% over the past month, and currently trade at a forward P/E of 10.93X and a P/CF of 8.75X.

The Staffing Firms industry may rank in the bottom 83% of all the industries we have in our universe, but there still looks like there are some nice tailwinds for RGP and KFY, even beyond their own solid fundamental situation.


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