ASGN Stock Study (6-27-23)

I recently did a stock study on ASGN Inc. (ASGN) with a closing price of $71.97. The original study is here.

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.
     > It operates through two segments, Commercial and Federal
     > Government. The Commercial Segment, which is their largest
     > segment, provides consulting, creative digital marketing, and
     > permanent placement services to Fortune 1000 clients and mid-
     > market companies. The Federal Government Segment provides
     > mission-critical solutions to the Department of Defense,
     > intelligence agencies, and civilian agencies.

Over the past decade, this medium-size company has grown sales and earnings at annualized rates of 12.6% and 19.5%, respectively. Lines are mostly up, straight, and parallel except for an EPS dip in ’15 and sales dip in ’20. PTPM is about even with peers while lagging industry averages, increasing from 5.7% in ’13 to 7.9% in ’22 with a last-5-year mean of 6.9%.

Also over the past decade, ROE is slightly better than peers while trailing industry averages, increasing from 8.9% in ’13 to 13.8% in ’22 with a last-5-year mean of 13.2%. Debt-to-Capital has been slightly higher than peers and much lower than industry averages with a last-5-year mean of 41.8%. Interest Coverage is 7.6 and Quick Ratio is 2.3. Value Line gives ASGN a B+ rating for Financial Strength.

With regard to sales growth:

• CNN Business projects 2.2% YOY contraction and 2.2% growth per year for ’23 and ’22-’24 (based on 7 analysts).
• YF projects YOY 0.8% contraction and 4.8% growth for ’23 and ’24, respectively (8 analysts).
• Zacks projects YOY 1.3% contraction and 6.0% growth for ’23 and ’24, respectively (3).
• Value Line projects 5.5% annualized from ’22-’27.
• CFRA projects 0.7% YOY contraction and 2.0% per year for ’23 and ’22-’24 (6).
• M* gives a 2-year annualized ACE of 1.8%.

I am discounting the one long-term estimate available to arrive at my forecast of 3.0% per year.

With regard to EPS growth:

• CNN Business projects 11.4% YOY contraction and 0.4% growth per year for ’23 and ’22-’24 (based on 7 analysts), along with 5-year annualized growth of 5.1%.
• MarketWatch projects annualized growth of 0.4% and 4.4% for ’22-’24 and ’22-’25, respectively (8 analysts).
• Nasdaq.com projects growth of 14.9% YOY and 17.0% per year for ’24 and ’23-’25 [4, 4, and 1 analyst(s)].
• Seeking Alpha projects 4-year annualized growth of 5.1%.
• YF projects YOY 11.6% contraction and 14.0% growth for ’23 and ’24, respectively (8), along with 5-year annualized growth of 5.1%.
• Zacks projects YOY 11.1% contraction and 14.9% growth for ’23 and ’24, respectively (4), along with 5-year annualized growth of 5.1%.
• Value Line projects annualized growth of 4.5% from ’22-’27.
• CFRA projects growth of 11.9% YOY and 13.2% per year for ’23 and ’22-’24, respectively (7).

All long-term estimates besides Value Line are the exact same number (5.1%), which makes me suspicious of data duplication under the guise of different data sources (mean of five: 5.0%). It almost seems like we have just two long-term estimates with a mean of 4.8%. I am forecasting below the range at 3.0% and using ’23 Q1 EPS of $4.90/share (annualized) as the initial value rather than ’22 EPS of $5.21.

I think it noteworthy that for my 2/16/23 study on this stock, the mean of five long-term estimates was 10.8%: more than double the current value.

My Forecast High P/E is 21.0. Over the past decade, high P/E has trended lower from 35.7 in ’13 to 25.3 in ’22 with a last-5-year mean of 26.5. The last-5-year-mean average P/E is 21.5. I am forecasting just below the range.

My Forecast Low P/E is 11.0. Over the past decade, low P/E has ranged from 7.7 (downside outlier in ’20) to 22.7 in ’15 with a last-5-year mean (excluding ’20) of 16.5. This is also trending lower. I am forecasting below the range (outlier excluded).

My Low Stock Price Forecast (LSPF) is the default value of $53.90 based on $9.74/share initial value. This is 25.1% less than the previous closing price and 14.8% less than the 52-week low.

These inputs land ASGN in the HOLD zone with a U/D ratio of 2.6. Total Annualized Return (TAR) is 10.6%.

PAR (using Forecast Average—not High—P/E) is less than the current yield on T-bills at 4.8%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 75 studies over the past 90 days (19 outliers and my study excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, and Forecast Low P/E are 6.0%, 8.5%, 23.9, and 14.2, respectively. I am lower across the board. Value Line projects an average annual P/E of 17.0, which is lower than MS (19.1) and higher than mine (16.0).

MS high/low EPS are $7.65/$4.66 [per share] versus my $5.68/$4.90. My high EPS is lower due to a lower EPS growth rate.

MS LSPF of $60.90 implies a Forecast Low P/E of 13.1 (vs. the above-stated 14.2). This is 8.0% less than the default value $4.66 * 14.2 = $66.17, which results in more conservative zoning. It remains 13.0% higher than mine, however.

MOS seems robust in the current study.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are other valuation metrics I have recently begun to monitor. Zacks reports PEG of 2.44 where 1.50 is generally regarded as the upper limit. Relative Value (M* data) is 0.68. In this case, the latter looks attractive whereas the former does not.

ASGN is a BUY under $70/share, but I would like a higher TAR for a medium-size company. I would look to re-evaluate under $66/share.