ASGN Stock Study (2-16-23)

I recently did a stock study on ASGN Inc. (ASGN) with a closing price of $92.72.

M* writes:

     > ASGN Inc is a provider of information technology (IT) services
     > and professional solutions, including technology, creative,
     > and digital, across the commercial and government sectors.

This medium-sized company has grown sales and earnings at annualized rates of 12.6% and 19.5% over the last 10 years. Lines are mostly up, straight, and parallel except for dips in EPS (’15) and sales (’20). PTPM has increased from 5.7% (’13) to 7.9% (’22) with a last-5-year average of 6.9%. This is slightly higher than peer averages while trailing the industry.

ROE has increased from 8.9% (’13) to 13.8% (’22) with a last-5-year average of 13.2%. Again, this is slightly better than peer averages while trailing the industry. Debt-to-Capital has averaged 43% over the last five years, which is slightly higher than peer averages and much lower than the industry. Interest Coverage is 10 and Quick Ratio is 2.21. Value Line gives APD a B+ for financial strength.

I assume long-term annualized sales growth of 6% based on the following:

• CNN Business projects 2.2% YOY and 4.3% per year for ’23 and ’22-’24, respectively (based on 6 analysts).
• YF projects YOY growth of 3.4% and 5.4% for ’23 and ’24, respectively (7 analysts).
• Zacks projects YOY 2.4% and 5.9% for ’23 and ’24, respectively (3).
• Value Line projects 8.4% annualized from ’21-’26.
• CFRA projects 3.2% YOY and 4.2% per year for ’23 and ’22-’24 (6).
• M* gives a 2-year annualized estimate of 3.4%.

This is admittedly not a conservative forecast. I am projecting sales to pick up after the next couple years.

I assume long-term annualized EPS growth of 8% based on the following:

• CNN Business projects a 3.5% YOY contraction and 5.1% growth per year for ’23 and ’22-’24, respectively (based on 6 analysts), along with 5-year annualized growth of 10.9%.
• Nasdaq.com projects 13.4% YOY growth for ’24 (3 analysts).
• Seeking Alpha projects 5-year annualized growth of 10.3%.
• YF projects YOY 3.7% contraction and 14.4% growth for ’23 and ’24, respectively (7), along with 5-year annualized growth of 10.9%.
• Zacks projects YOY 3.7% contraction and 13.5% growth for ’23 and ’24, respectively (3), along with 5-year annualized growth of 10.9%.
• Value Line projects annualized growth of 10.9% from ’21-’26.
• CFRA projects growth of 23.4% YOY and 17.9% per year for ’23 and ’22-’24, respectively (7).

I am projecting below the entire range of five long-term estimates (mean 10.8%).

My Forecast High P/E is 22. High P/E has ranged from 22.1 (’17) to 37.8 (’15) with a last-5-year average of 26.5. It seems to be trending lower. I am projecting just below the range.

My Forecast Low P/E is 14. Low P/E has ranged from 7.7 (downside outlier in ’20) to 22.7 (’15) with a last-5-year average (excluding ’20) of 16.5. It also seems to be trending lower. Only the outlier is less than my projection.

My Low Stock Price Forecast is the default $72.80. This is 21.5% below the previous closing price and below ’21 and ’22 lows.

These inputs land ASGN in the BUY zone with an U/D ratio of 3.8. The Total Annualized Return is 12.7%.

PAR (using forecast average, not high, P/E) is lower than I would like for a medium-sized company at 8.2%. A good margin of safety (MOS) might be the additional convincing I need to buy this stock.

To evaluate MOS, I compare my inputs with Member Sentiment (MS). Out of 71 studies over the past 90 days (my own and one other with invalid Low Stock Price Forecast excluded), projected sales, projected EPS, Forecast High P/E, and Forecast Low P/E average 8.3%, 9.4%, 23.4, and 15, respectively. I’m slightly lower on all inputs. Value Line projects an average annual P/E of 20, which is slightly higher than MS (19.2) and higher than mine (18). All this amounts to the presence of at least some MOS in this study.

MS Low Stock Price Forecast is $61.07. While 12% lower than mine, my Forecast Low P/E is lower. The stock was ~17% lower six weeks ago and 59 of the MS studies were done in those first seven weeks, which might help explain this finding.

Despite the MOS, I am going to wait for slightly lower prices in hopes of seeing a better PAR.