Barrett Business Services (BBSI) Q1 Earnings Preview: Growth Amid Profitability Challenges

As Barrett Business Services (BBSI) prepares to report its Q1 2025 results on April 29, investors will scrutinize a critical juncture for the company. While revenue growth remains on track, profitability faces headwinds, and management’s ability to stabilize margins will be under the microscope. Here’s what to watch.

Key Financial Forecasts: Revenue Growth vs. Profitability Pressures

Analysts project BBSI’s Q1 2025 revenue to rise 7.6% year-over-year to $285.9 million, building on the 5.7% growth in Q1 2024. However, the earnings picture is less rosy: the adjusted loss is expected to widen to -$0.13 per share, compared to a slight profit of $0.00 in Q1 2024. This marks a stark reversal from the prior year’s outperformance, when BBSI beat EPS estimates by +93.5%.

The disconnect between top-line growth and bottom-line struggles underscores challenges in the company’s Staffing Services segment, which posted a 12.4% revenue decline in Q1 2024. By contrast, its core Professional Employer Services (PEO) division grew 6% year-over-year, reflecting strong demand for its HR outsourcing and payroll solutions.

Segment Dynamics: Strength in PEO, Struggles in Staffing

BBSI’s PEO segment—its largest revenue driver—continues to thrive. With over 8,100 clients nationwide, it benefits from secular trends in HR outsourcing. The segment’s $246.19 million in Q1 2024 revenue exceeded estimates, signaling scalability in its core business.

The Staffing Services division, however, remains a drag. Its Q1 2024 revenue fell to $19.59 million, missing estimates by $5 million amid weaker demand for temporary workers. This contrasts sharply with peers like ManpowerGroup and Kforce, which also reported staffing declines (7.1% and 6.2%, respectively). BBSI’s ability to address this underperformance could determine its near-term trajectory.

Valuation and Market Context

BBSI’s valuation reflects mixed expectations. Its trailing P/E ratio of 20.79 and forward P/E of 19.70 suggest investors are pricing in moderate growth, but not a quick EPS rebound. The stock trades at $41.91, below the $46.75 average price target, implying a 12% upside potential if the company can stabilize margins.

The company’s four-for-one stock split in June 2024 has improved liquidity but hasn’t yet translated to sustained gains. Over the past month, BBSI shares rose 6.8%, underperforming the professional staffing sector’s 10.3% gain, a gap likely tied to concerns about profitability.

Risks and Opportunities

• Upside Drivers:
• Strong PEO growth, driven by its 2025 revenue target of $1.23 billion (7.7% annual growth).
• Potential for margin recovery if staffing costs stabilize or the segment rebounds.

• Institutional support: Thrivent Financial’s 272.7% stake increase in Q4 2024 signals confidence in BBSI’s long-term prospects.

• Downside Risks:

• Persistent staffing headwinds and weak EPS could deter investors.
• Sector-wide challenges: Peer underperformance (e.g., ManpowerGroup’s 7.1% revenue decline) suggests broader economic sensitivities.
• Historical volatility: BBSI has missed revenue estimates five times in the past two years, raising execution concerns.

Conclusion: A Buy With Caution

Barrett Business Services enters Q1 earnings with a mixed narrative. Its PEO segment’s resilience and strong revenue growth justify optimism, but the EPS shortfall highlights execution risks. The $46.75 price target hinges on management’s ability to:
1. Turn around the staffing division, perhaps through cost discipline or strategic shifts.
2. Deliver consistent EPS growth, as analysts project a 9.5% rebound to $2.17 in 2025.

Investors should prioritize clarity from CEO Gary Kramer and CFO Anthony Harris on margin strategies and near-term guidance during the May 7 call. While BBSI’s leading PEO position and sector tailwinds remain compelling, the stock’s valuation and profitability trajectory will ultimately determine its appeal. For now, BBSI is a hold for cautious investors, with upside potential contingent on stabilizing profitability.

Final Takeaway: Barrett’s Q1 results will test whether its growth story can overcome short-term profitability hurdles. Monitor management’s commentary on margin initiatives and staffing trends closely.