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Insperity Inc (NSP), G&K Services Inc (GK), The Advisory Board Company (ABCO): Business Service Firms Are Set to Profit

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With employment rising throughout the United States, business service firms are set to increase profits in the years ahead. The economic recovery also means businesses have more disposable income with which to optimize company performance. These are three of the top firms that will be contacted to reap the benefits of more company spending power.

Insperity is set to profit from ObamaCare

Insperity Inc (NYSE:NSP) must be happy about Obamacare, as the firm looks to help companies make sense of the health policy that will be more fully rolled out at the beginning of next year. The company provides business solutions for benefits, workers’ compensation, training, payroll and employee management. I expect the number of businesses coming to Insperity Inc (NYSE:NSP) for advice will steadily increase throughout this year and next.

Despite this, analysts believe the company’s EPS will retract by 7% this year, and grow 18% next year. However, I believe the benefits of the ObamaCare reform will come this year, as businesses prepare prior to the changes, rather than during.

I further disagree with this year’s analyst estimates because the company has only begun to capture the overall business advisory market. Insperity Inc (NYSE:NSP) expects a 3.5% per year increase in employees under its professional employer organization. That would put the firm up to 130,000 employees per month. The company focuses on firms with between 10 and 100 employees. That represents 28 million employees in the United States, and a mountain of potential growth for the company, given its current small client base in comparison to the potential.

G&K is ready to dress returning and new workers

G&K Services Inc (NASDAQ:GK) makes money when Americans are employed. That’s why the last few years has been a struggle for the firm. But with employment numbers on the rebound (see chart), the company is ready to make serious gains. After all, G&K Services Inc (NASDAQ:GK) is a leading supplier of work clothes. As the chart shows, revenue gains at G&K is almost synchronized with the unemployment rate recovery.

US Unemployment Rate data by YCharts

Analysts also believe the firm will experience continued success along with the employment recovery. They expect a 28% increase to EPS this year, and a further surge of 10% next year. I expect full employment to be reached in the next three years, and at that point G&K Services Inc (NASDAQ:GK)’s revenue will likely stabilize.

I believe the consensus prediction for revenue is way off, however. Analysts predict a 4.6% increase this year, and another 4.7% next year. But as the chart indicates, revenue is already growing at about 8%. A decrease in that rate would likely mean a reduction in the employment recovery, and I don’t see that happening soon.

Advisory Board has a strong economic moat

The Advisory Board Company (NASDAQ:ABCO) provides companies with best practices research. As firms have more disposable money with which to work, in light of the economic recovery, I see this stock doing well. Furthermore, The Advisory Board Company (NASDAQ:ABCO) could also benefit from the onslaught of Obamacare.

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