ASGN - Embedded Expectations Analysis - 2021 09 08
ASGN Incorporated (ASGN:USA) currently trades near corporate averages relative to UAFRS-based (Uniform) earnings, with a 20.6x Uniform P/E. At these levels, the market is pricing in expectations for profitability to remain stable. However, although management's concerns about EBITDA growth, pay and bill margin spreads, and IT services and solutions suggest the potential for near-term headwinds, market expectations are still too bearish, and equity upside remains warranted.Specifically, management may be overstating the breadth of their capabilities, the extent of their account diversification, and the potential of their contract award in intelligence operations. Additionally, they may lack confidence in their ability to become a leading provider of IT services and solutions, sustain EBITDA growth, and continue widening the spread between pay and bill margins. Moreover, management may have concerns about the market focus of Creative Circle, their nearshore IT workforce offering, and pulling higher-end consultative services across their existing account portfolio. Finally, they may also lack confidence in their ability to expand their footprint in Mexico, support their clients' global initiatives, and adapt to the digital transformation.
Although management's concerns about EBITDA growth, pay and bill margin spreads, and IT services and solutions suggest the potential for near-term headwinds, market expectations are still too bearish given the firm's strong secular growth drivers. As such, equity upside remains warranted.
ASGN provides information technology (IT) and other services in the technology, digital, creative, engineering and life sciences fields across commercial and government sectors. The company's segments are: Apex, which provides technical, digital, creative, scientific and engineering personnel for contract, contract-to-hire, and permanent placement positions to clients across the United States and Canada; Oxford, which provides staffing and permanent placement services in select skill and geographic markets in the United States and Europe; and ECS, which delivers solutions in cloud, cybersecurity, artificial intelligence, machine learning, application and IT modernization, science and engineering.
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