KELYA - Kelly Services (KELYA) - Russia and Potentially Wider Impact

Russia Exposure. Given the recent Russia/Ukraine events, we reviewed Kelly's direct exposure to the two countries. In 2021, Russia accounted for $132.2 million, or approximately 2.7%, of Kelly's overall revenue. As of January 2, 2022, Kelly’s Russian operations comprised approximately 1% of the Company’s assets. Customer accounts receivable is the primary asset in Russia. Kelly does not have a subsidiary or employees in Ukraine.Sanctions. According to the Company, sanctions issued since February 24, 2022 by the European Union, United States, and other countries against certain Russian entities and persons and certain activities involving Russia or Russian entities, have created uncertain economic conditions. The current economic environment, along with the suspension of services by some of the Company's service providers and customers, have resulted in disruptions in the Russian operation and could substantially reduce revenues in Russia or lead to an inability to operate in Russia. Wider Impact? Kelly's overall European operations accounted for 20.5% of Kelly's 2021 revenue. Other key markets in the region include France (4.5% of overall revenue), Switzerland (4.5%), Portugal (3.2%), Italy (1.5%), and the UK (1.4%). While it is too early to project the ultimate impact of the conflict on Kelly's operations, it bears watching.Maintaining Outperform and $30 PT. We are maintaining our Outperform rating and our 12-month price target of $30. While the recovery is occurring at a slower pace than anticipated, Kelly's specialization focus, spiced up with the capital from the Persol sales, will help drive faster top line growth and higher margins over time. At our price target, KELYA shares would trade at 18x our 2022 adjusted EPS estimate, 6.8x EV/estimated 2022 EBITDA, and 0.15x EV/estimated 2022 revenues. Read More >>