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ASGN: High-margin business consulting firm that drives business forward (NYSE: ASGN)

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Introduction

If we display a weekly chart of ASGN Incorporated (NYSE: ASGN), we see that stocks appear to be approaching a MACD buy signal. The stock price decline was finally halted by the 200-week period the moving average and 10-week moving average of $94+ per share now appear to be in ASGN’s sights. We state this due to the rising histogram over the past few sessions due to the strong performance of ASGN’s stock price over the past few weeks. The best MACD buy signals present themselves when the crossover takes place well below the zero line, so it will be interesting to see if the momentum can continue in the ASGN going forward.

ASGN Technical Table

ASGN focuses on a long-term bottom (Stock charts)

Earnings growth outperformance

While the technician studies the effect of the market movement, the fundamentalist focuses more on why ASGN shares have been in bullish mode for the past three weeks or so. On that note, the company’s forward-looking earnings revisions continue to gain traction. ASGN’s FY2022 net income estimate of around $5.40 per share has risen more than 10%, for example, in the last three months alone. Given that earnings growth is the primary driver of stock prices on Wall Street, stocks will continue to rally if forward earnings revisions continue to be pushed higher.

The technician, meanwhile, believes that human psychology plays a major role in how ASGN shares trade over the long term. This means that (as long as the fundamentals of the company have not been altered in a major way), buyers should continue to intervene when the shares of the company are on sale. We can see this on the ASGN long-term chart as stocks have more often than not been able to bounce off long-term support (200 week moving average) due to the inevitable intervention of buyers. This “market beat” or psychology (which could very well be playing out in ASGN right now) among investors trading and investing in this stock tends not to change. Additionally, we can see below that the stock has a wide avenue for growth from some encouraging trends in the company’s recent financial statements.

For the first quarter earnings call, we saw better than expected revenue growth in the commercial segment (business consulting, creative digital marketing, permanent placement). As discussed above regarding the company’s earnings revisions, ASGN’s numbers continue to be above target and the market is finally starting to price this growth into the stock price.

The company’s business advisory bookings (funded work awarded) for the first quarter of nearly $300 million was a huge increase over the same 12-month period prior, and this trend, in particular, brings positive ramifications at the table for society. .

Margin extension

On the one hand, gross margins continue to increase due to the strong growth of this segment. Business consulting sales grew more than 74% in the first quarter to nearly $205 million and while comps are expected to be choppy in the coming quarters, management reiterated its bullish outlook for this segment. Suffice it to say, the higher mix of business advice is also driving EBITDA margin growth further down the income statement. ASGN’s Adjusted EBITDA margins are now expected to reach at least 12.2% in fiscal 2022, which is further evidence of growth in the high-margin business advisory business. Also, the encouraging aspect of this trend is that higher margins had already been reported by management last year, so more upside is expected here based on the bookings that have been reported to date.

Digital transformation

The tailwinds in consulting come from a very strong account base from which ASGN can continue to add value through its ongoing solutions. Whether value is added through the cloud, data analytics, etc., the key is that ASGN’s customers simply need to continue to deploy their digital footprints to stay competitive. This “need” limits downside risk to ASGN, as IT spending will continue to grow regardless of how economic conditions change in the future. Suffice it to say, we’re still in the early innings of the digital revolution, so there’s plenty of room for growth here.

Conclusion

So to sum up, with stocks currently trading at a forward GAAP earnings multiple of 16.59 and a forward sales multiple of 1.02, stocks continue to look cheap given the trends we’ve seen. discussed above. Let’s see if the company can report another second-quarter earnings beat. We look forward to continued coverage.