William Blair & Company LLC Analyst Timothy McHugh says On Assignment, Inc. (ASGN) should grow faster than competitors in 2014, largely on the strength of its IT staffing business.
“As it relates to On Assignment, they’ve seen some choppiness in some large projects related to health care IT in their Oxford division lately,” McHugh says. “But generally speaking, as I said, IT staffing remains the strongest area in the staffing world. That accounts for more than 80% of On Assignment’s revenue, and I think in particular they are gaining share within even that IT staffing space.”
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Additionally, McHugh says there is some discrepancy among investors as to how to look at On Assignment’s valuation.
“There’s certainly their GAAP results, but on top of that they provide an adjusted EPS or a cash EPS that adjusts out for intangible amortization, some deferred tax shields, as well as adds back some other items just to be conservative,” he says. “I think that cash EPS presentation is fair, I think it’s reflective of cash flow, and so that’s the number I use. I think it’s also fairly comparable to the cash-flow metrics from the rest of the peer group.”
Based on that metric, McHugh says On Assignment traded at around 16 times 2014 earnings, which he says is a discount to its peer group. That, combined with faster growth, makes On Assignment one of McHugh’s top picks in the staffing & outsourcing services sector for 2014.
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