On Tuesday, JPMorgan continued its coverage on TriNet Group (NYSE:TNET), maintaining an Underweight rating and a price target of $103.00. The firm's previous analyst, Tien-tsin Huang, has been succeeded by Andrew Polkowitz, who has made no adjustments to the prior forecasts, ratings, or price objectives ahead of the company's earnings release scheduled for later this week on October 25.
TriNet's revenue growth projections are slightly below consensus, primarily due to lower insurance revenues, which are largely considered pass-through. JPMorgan's estimates for the third quarter and the full year are just above the adjusted earnings per share (EPS) midpoint provided by TriNet, with expectations of lower sales and marketing expenses contributing to this outlook.
The firm's analysis suggests that TriNet's Worksite Employee (WSE) growth will remain subdued in the near term, with an estimate of a 1.5% increase for the third quarter compared to the first half of 2024's growth of around 1.4%.
Small Establishment hiring data, which declined from July to September according to the ADP National Employment Report, supports JPMorgan's position on the lower end of TriNet's third-quarter guidance. However, any upside to JPMorgan's estimates could result from higher rates as TriNet prices its benefits plans throughout the year.
The analyst notes that the recent earnings from Paychex (NASDAQ:PAYX) had a neutral impact on TriNet and its peers, ADP and Insperity (NYSE:NSP), with Paychex's growth attributed to unique factors within the company. Additionally, UnitedHealth Group's (NYSE:UNH) report of higher medical expenses in the third quarter, driven by strong utilization, does not provide a clear indication of health performance for TriNet.
Despite the stock's 18% decline since the second-quarter earnings, compared to the S&P 500's 7% increase, JPMorgan believes that the market has already accounted for the tempered expectations, leading to the decision to maintain the Underweight rating and $103 price target.
In other recent news, TriNet Group has made significant strides in its business operations and executive team. The company reported robust second-quarter earnings, with revenues hitting the high end of its guidance, marking a 30% increase for the first half of 2024 compared to the previous year. TriNet's disciplined approach to operating expenses led to strong earnings and cash flows, enabling the company to repurchase $135 million of its stock and pay out $25 million in dividends.
TriNet also announced a quarterly dividend of $0.25 per share, reflecting the company's financial stability and commitment to its shareholders. The company has made key appointments including Sidney Majalya as the new Senior Vice President, Chief Legal Officer, and Secretary, and Varsha Kakati as Vice President and India Country Leader. These strategic personnel changes demonstrate TriNet's commitment to innovation and growth.
The company received a positive nod from Needham, which reaffirmed its Buy rating on TriNet, expressing confidence in the company's sales strategies and insurance cost management. These are recent developments that suggest TriNet's ongoing efforts to deliver value to its shareholders, maintain financial stability, and foster growth.
InvestingPro Insights
Recent InvestingPro data provides additional context to JPMorgan's analysis of TriNet Group (NYSE:TNET). The company's P/E ratio stands at 15.2, with an adjusted P/E of 14.31 for the last twelve months as of Q2 2024. This relatively modest valuation could be seen as reflecting the market's tempered expectations, aligning with JPMorgan's Underweight rating.
InvestingPro Tips highlight that TriNet is trading near its 52-week low, with the stock taking a significant hit over the last six months. This is corroborated by the InvestingPro data showing a 29.27% price decline over the past six months. These metrics support JPMorgan's observation of the stock's 18% decline since the second-quarter earnings.
Despite these challenges, InvestingPro Tips also indicate that analysts predict the company will be profitable this year, and it has been profitable over the last twelve months. This profitability outlook may provide some reassurance to investors amid the current market sentiment.
For readers seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for TriNet Group, providing a deeper understanding of the company's financial position and market performance.
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