ASGN (ASGN)

IT services provider ASGN (NYSE:ASGN) beat Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 7.7% year on year to $968.3 million. On the other hand, next quarter’s revenue guidance of $1 billion was less impressive, coming in 1.1% below analysts’ estimates. Its non-GAAP profit of $0.92 per share was 2.6% below analysts’ consensus estimates.

Company Overview

Evolving from its roots in IT staffing to become a high-end technology consulting powerhouse, ASGN (NYSE:ASGN) provides specialized IT consulting services and staffing solutions to Fortune 1000 companies and U.S. federal government agencies.

IT Services & Consulting companies stand to benefit from increasing enterprise demand for digital transformation, AI-driven automation, and cybersecurity resilience. Many enterprises can't attack these topics alone and need IT services and consulting on everything from technical advice to implementation. Challenges in meeting these needs will include finding talent in specialized and evolving IT fields. While AI and automation can enhance productivity, they also threaten to commoditize certain consulting functions. Another ongoing challenge will be pricing pressures from offshore IT service providers, which have lower labor costs and increasingly equal access to advanced technology like AI.

ASGN competes with other IT services and staffing firms including Accenture (NYSE: ACN), Cognizant (NASDAQ: CTSH), EPAM Systems (NYSE: EPAM), and Kforce (NASDAQ: KFRC), as well as with the consulting arms of major technology companies and specialized government contractors.

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $4.02 billion in revenue over the past 12 months, ASGN is a mid-sized business services company, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale.

As you can see below, ASGN’s sales grew at a sluggish 2.9% compounded annual growth rate over the last five years. This shows it failed to generate demand in any major way and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. ASGN’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 6.7% annually.

This quarter, ASGN’s revenue fell by 7.7% year on year to $968.3 million but beat Wall Street’s estimates by 0.6%. Company management is currently guiding for a 3.4% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 2% over the next 12 months. Although this projection implies its newer products and services will spur better top-line performance, it is still below average for the sector.

ASGN was profitable over the last five years but held back by its large cost base. Its average operating margin of 8.2% was weak for a business services business.

Analyzing the trend in its profitability, ASGN’s operating margin decreased by 1 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. ASGN’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, ASGN generated an operating profit margin of 4.8%, down 1.9 percentage points year on year. This reduction is quite minuscule and indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

ASGN’s weak 3.3% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

In Q1, ASGN reported EPS at $0.92, down from $1.16 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects ASGN’s full-year EPS of $4.99 to grow 1.6%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

ASGN has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 7.5% over the last five years, better than the broader business services sector. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Taking a step back, we can see that ASGN’s margin dropped by 5.1 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

ASGN broke even from a free cash flow perspective in Q1. The company’s cash profitability regressed as it was 5.3 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

ASGN historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 10%, somewhat low compared to the best business services companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, ASGN’s ROIC averaged 2.1 percentage point decreases over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

ASGN reported $107 million of cash and $1.78 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $437.3 million of EBITDA over the last 12 months, we view ASGN’s 3.8× net-debt-to-EBITDA ratio as safe. We also see its $62.1 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see ASGN narrowly top analysts’ revenue expectations this quarter. On the other hand, its EPS and EBITDA missed, and its outlook for all key financial metrics fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 2.9% to $56.79 immediately after reporting.

Updated: May 22, 2025 at 11:18 PM EDT

Before investing in or passing on ASGN, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

We see the value of companies helping consumers, but in the case of ASGN, we’re out. First off, its revenue growth was uninspiring over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its strong free cash flow generation allows it to invest in growth initiatives while maintaining an ample cushion, the downside is its cash profitability fell over the last five years. On top of that, its weak EPS growth over the last five years shows it’s failed to produce meaningful profits for shareholders.

ASGN’s P/E ratio based on the next 12 months is 10.7x. At this valuation, there’s a lot of good news priced in - we think there are better investment opportunities out there.

Wall Street analysts have a consensus one-year price target of $61.33 on the company (compared to the current share price of $54.21).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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