(By Balaseshan) Deutsche Bank analyst Paul Ginocchio initiated coverage of On Assignment Inc. (NASDAQ:ASGN) with a "Buy" rating and $21 price target.
Ginocchio said On Assignment has the three exposures he wants in a staffing company: IT, healthcare, and strong management. Then he is getting these optimal exposures at an attractive relative valuation.
As On Assignment continues to put up strong growth and operating leverage, the analyst thinks the discount to Robert Half International Inc. (NYSE:RHI) will disappear.
Healthcare staffing (26% of 3Q gross profit), Ginocchio believes, is less correlated to the economy due to the structural changes happening in the market. IT staffing (74% of 3Q gross profit) has been the most consistent and fastest growing staffing discipline in this cycle.
The analyst said scarcity of talent should mean that IT staffing can further decouple from decelerating U.S. GDP and maintain solid growth rates.
On Assignment, on a proforma basis with Apex Systems, grew organically at around 29% in 2011, and Ginocchio estimates it should grow about 27% in 2012 and 11% in 2013. This is faster than RHI at up 17% in 2011, up 11% in 2012 and up 11% in 2013. On Assignment has also grown EPS faster than RHI for the last 5 quarters (which excludes Apex).
Longer term, ASGN's EPS has doubled since the 2007 economic peak through 2011 while RHI's EPS is down. While there should be some liquidity discount, the analyst thinks ASGN's better growth and better end market (75% IT versus RHI at about 60% Finance & Accounting), should mean at least a comparable valuation.
The brokerage established its Q3 EPS estimate for On Assignment of $0.30, its Q4 estimate of $0.27, its 2012 estimate of $1.03 and its 2013 estimate of $1.34.
ASGN is trading down 1.01% at $15.63 on Tuesday.