Weekly Equity Idea Highlight - ASGN - 2019 07 03
Market expectations for ASGN are as though we are already in the midst of a terrible job market and a recession. Markets are expecting UAFRS-based (Uniform) ROA (ROA') to decline by half, to lows not seen since the midst of the poor hiring environment of 2009- 2011, with slower growth for the company too. The market is viewing ASGN as a hyper cyclical staffing business, when, thanks to their positioning in areas like AI, machine learning, cloud, cybersecurity, and other places, they are staffing positions that are likely to be stickier in a recession, and have continued strong demand. Also, with Valens' Market Phase Cycle showing bullish signals for the economy and market, near-term risk of an employment rollover appears to be overstated. Management also has strong confidence around their outlook and strategy for the business. During the Q1 call, management showed confirming and new confidence and excitement around areas like their growth, the durability of their margins, their guidance, and their ability to drive billable day growth. Management was also confident about the overall strength of their markets. These markers point to a management team growing more confident about their outlook, while the market is overly focused about macro risks. Considering low market expectations, management's intelligent strategy and strong positive fundamental momentum for the company, and a better macro environment than the market perceives, there appears to be material near-term and long-term equity upside for ASGN.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.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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