market folly

The Harbor Investment Conference took place late last week and featured a bevy of hedge fund managers sharing their latest investment ideas. Mick McGuire of Marcato Capital Management was one of the speakers and his pick was SFN Group (SFN). Before founding Marcato, McGuire previously worked at Bill Ackman's Pershing Square Capital Management.

The following is a guest post from Benzinga.com with a summary of McGuire's bullish case for SFN Group:

"Mick McGuire of Marcato Capital Management spoke at the Harbor Investment Conference yesterday and recommended SFN Group Inc (NYSE: SFN) to the audience.

McGuire, who is a former chairman of Borders (NYSE: BGP) is an activist investor in the midcap space, and he believes there is significant value in SFN Group. McGuire said that the market cap of SFN is equal to the enterprise value of this U.S. based staffing firm.

He likes SFN because its' normalized earnings power should exceed the historic levels, and it's trading at a lower earnings multiple.

The company owns a variety of different staffing firms, including Spherion and Tatum, as well as others. It staffs different types of employees, from the entry level worker, to a seasoned company executive. The company receives higher margins on higher paying jobs.

McGuire believes that a lot of companies could maintain a high percentage of temporary workers, as he believes that many companies will want to maintain employee flexibility, should unforeseen events occur in the economy.

With an enterprise value of only $550 million, and $100 million in expenses from SG&A removed, McGuire believes the company is poised to increase its value over time. The company also has a significant amount of net operating losses at both the federal and state levels, which should allow the company to double EBITDA over the next year. The only major expense the company has is capital expenditures, and the company recently made a major technology purchase for its systems, which should allow Capex spending to drastically slow down over the next few years. The increase in EBITDA goes straight to the company's free cash flow.

McGuire also mentioned that the company is buying back 5% of its stock, thanks in large part to the increase in free cash flow it's seeing.

McGuire said that he believes SFN has an implied stock price of $20.26 by 2012."

Benzinga has covered the Harbor Investment Conference extensively and we highly recommend reading their coverage of the event:

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