TriNet Group: Non-Stop Growth Through Quality Service

Summary

• TriNet provides HR solutions through a co-employment model in tandem with its own workflow optimization software.
• The company will soon report its first-quarter results for 2022 after a successful year that saw record numbers.
• Recent news indicates that growth can be expected in the next few years as the industry at large also experiences a positive upward trend.

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TriNet Group, Inc. (NYSE: NYSE:TNET) is a Professional Employer Organization, or PEO, that provides small and medium sizes businesses with HR solutions through a co-employment model. Its HR solution includes payroll and tax management in several states. Employee benefits program include: health insurance and severance pay; Workers' Accident Compensation Insurance and Claim Management; Compliance with Labor and Performance Acts; and other HR-related services. It offers a variety of services such as compensation and benefits, salaries, employee records, health insurance, and worker accident compensation programs, as well as other transactional HR needs using technology platforms and HR, benefits, and compliance. It also provides a software-based solution for optimizing workflows through TriNet Zenefits.

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The company experienced positive growth all throughout 2021 and is continuing to show itself capable of being a great long-term investment. While the rate of growth may vary for the company going forward, a closer look at the company’s financials and recent acquisitions show that it is strategically making moves to secure its foundations - for these reasons, the company is a solid buy in its current state, as there is no reason why there should not be a continuation of the trend in price seen over the last year.

Industry Overview

The North American PEO Market is experiencing rapid growth and could grow at a compound annual growth rate of 11.54% by 2030. The forecast period of growth started in 2017, when the market was valued at only $42 billion, and is now expected to reach an overall value of approximately $147 billion by the end of that period. The aforementioned region leads the way, followed closely by Europe’s 8.76% expected CAGR.

This is good news for TriNet Group, as they prove to be vital beneficiaries from this market growth. It also shows that the company’s growth is not isolated, but instead buoyed by an overall positive trend in the market, which is continuously looking for new products and innovations to improve operational efficiency. The company’s services in Human Resource consulting experience, benefit options, payroll services, and risk mitigation are all based on its robust technology platform that will allow clients to benefit from these tools in ways that directly affect each of their own finances.

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TriNet will announce its first-quarter results of 2022 on the 26th of April, but there are already a few things to expect from these results. While sales have not yet been disclosed, expenditure is expected to be high in the first report after having completed the purchase of Zenefits. The aforementioned company will now operate as a subsidiary of TriNet, offering Software-as-a-Service through its human capital management solutions. This will expand the company’s reach to small and medium-sized business owners by offering its newly acquired HR tools and functionalities. The purchase will naturally come at a cost for the company, and there will be an adjustment period before the results begin to show. However, this is a positive development in securing the long-term future of the company.

News & Risks

According to a company press release:

In February 2022, TriNet's Board of Directors approved a $300 million increase in the ongoing stock repurchase program. As of December 31, 2021, approximately $263 million was still available for the repurchase of TriNet shares under this program.

This was accomplished via a modified Dutch Auction tender offer completed by March 17, 2022.

The share repurchase program was a positive development, as it gives some insight into how the company feels about the future. Despite this, there are also a few risks the company could face by the end of the year, which include the ongoing global pandemic and its adverse effects.

Other factors that could potentially slow growth are changes in the market that can be unpredictable at times, with each region and industry in which TriNet operates potentially facing economic turmoil that could negatively affect the business. Contracts are not protected by any pre-advised agreement and can be canceled whenever a client so chooses. This adds to the potential volatility of the business and the risks involved. Dependency is not only based on client retention, however, as the company has also identified a number of potential risks involving its dependency on third-party service providers, possibly affecting the manner in which TriNet is able to operate efficiently.

TriNet has made multiple efforts to improve its business and the quality of its service, which could also come at a potential cost, especially if said costs exceed expectations. These might also cause changes to the business in unforeseen ways. While TriNet has been meticulous in ensuring that its business is done in the best possible way and achieves long-term success, there are always potential short-term adverse effects, many of which could potentially offset growth. These business developments include but are not limited to the acquisition of companies and products that will be slow to show returns.

Financial Profile

TriNet’s quarterly and annual results showed steady growth throughout 2021. The company saw revenues surpass $1 billion after the first quarter to end the year with total revenues of $1.2 billion in Q4. This represented a 16% increase compared to the same quarter a year before and a significant increase from the already impressive $1.1 billion reported in the previous quarter. Overall, sales were up from $4 billion in 2020 to $4.5 billion in 2021.

Looking at the company's growth rate, it is interesting to note that the annual growth of the company was not only consistent with trends in recent years, but also surpassed the rate of growth experienced from 2019 to 2020, reporting nearly $500 million more than the previous year’s growth.

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While growth did slow in 2020 due to the pandemic, it is an encouraging sign to see things pick up again so quickly. This may explain the overall optimism shareholders have for the company. Net income applicable to shareholders also saw a consistent growth rate from the $272 million reported in 2020 to $338 million reported in 2021. While this does not parallel revenue growth, the margin between the last two years is almost exactly the same, growing by approximately $60 million per year.

TriNet’s adjusted net income per diluted share was reported at a significantly higher value of $5.64 when compared to the $3.99 per share reported in 2020. The company’s earnings per share surpassed expectations in all quarters throughout the year, by margins as large as twice the forecasted amount. The first quarter reported the highest EPS rate at a total of $1.52, with the final three months seeing a lesser but still impressive $0.97, compared to the mere $0.40 projected in that quarter. It is no wonder that estimates for the first quarter of 2022 project up to $1.9 in EPS and annual earnings of between $4.15 to $4.31.

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At the current rate of growth, TriNet is poised to continue breaking records, as it did in 2021. Shareholders may expect to see continued returns from the success of the company’s products.

Conclusion

TriNet is a company that understands that offering the best quality services to its clients is a sure path to success. Through its many subsidiaries and the different applications and services it offers, the company’s portfolio covers all areas of the PEO industry, and everything indicates continued developments in that area. There are a few risk factors involved, but if anything, the company has proven that its lowest points are merely slower growth rates, as opposed to actual declines in the company’s progress.

For investors skeptical as to whether the company has seen its best days and could possibly see a decline in the future, a look at the company’s robust and strengthening portfolio provides all the evidence needed to take a bullish stance on the company.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.