On Assignment: Answering the call
On Assignment Inc. (Nasdaq:ASGN) has a hire calling, preaching the gospel of contract employment among health-care and technical professionals. Despite the gloomy U.S. jobs picture, On Assignment continues to eke out surprising results.
Rather than trying to find work for everyone - including manufacturing or manual labor that Manpower Inc. (NYSE:MAN) and others provide - On Assignment has chosen to aim higher. It focuses on specialty skills for short-term and sometimes permanent assignments in health care, including physicians and nurses, life sciences and clinical research, engineering and IT staffing. It has just a smattering of international operations.
Founded in 1985, the Calabasas, Calif., company has 60 branches in the United States. On Assignment went public 16 years ago.
Of the five analysts surveyed by Thomson Reuters, two have On Assignment rated "strong buy," two call it a "buy," with the other ranking "hold." The median price target is $11.50 - just above the 52-week high of $11.42, hit on Aug. 22. On Assignment dropped to $4.32 on Jan. 24, but closed Friday at $9.27, down from its recent highs but up roughly one-third year-to-date.
"The overall job market has not been good for a while, but On Assignment has been squeaking out some improvement each quarter," said Tobey Sommer, a SunTrust Robinson Humphrey analyst who rates the stock a "buy," in an interview.
For the quarter ended June 30, On Assignment beat analysts' expectations, as revenue increased 8.5% to $156.1 million, and net income more than doubled to $6.1 million, or $0.17 a share.
Sommer, who has a $12 price target on the stock, noted On Assignment has shown improvement in its gross margin, which increased to 32.5% from 32.1% from the second quarter of 2007. He cited two factors in the company's favor: it does not rely heavily on any single client; and that physician demand shows double-digit growth even in a squishy economy.
Similarly, UBS analyst Andrew Fones, who rates the stock a "buy," wrote Aug. 5 that "On Assignment's significant exposure to health care and physician staffing makes it somewhat defensive to the economic slowdown, relative to the rest of our employment universe." Fones increased his target price to $11 from $10.
In January 2007, president and CEO Peter Dameris's to-do list included acquisitions of VISTA Staffing Solutions (for physician staffing) and Oxford Global Resources (in information technology).
The acquisitions helped revenue nearly double to $567.2 million, and for a second straight year On Assignment posted a profit - although the $9.3 million was 15.6% fell below 2006.
For the current quarter, On Assignment is looking for a gross margin of around 32%, revenue in the range of $156.5 million to $160 million (up from last year's $148.7 million), net income of $4.9 million to $6.2 million ($3.3 million last year) and earnings per share of $0.14 to $0.17 (versus $0.09).
"As we have suggested over the last four quarters, the strength of our business model has us well-positioned to perform in most economic environments," Dameris told analysts on an Aug. 4 conference call.
Data point toward lingering weakness in the jobs market, so it's likely that businesses will continue to rely on staffing resources from On Assignment and others to meet their immediate needs - until visibility on the economy's direction improves.
