AI And Cloud Adoption Will Fuel IT And Healthcare Consulting

Key Takeaways

• Deep investments in AI and strategic acquisitions are accelerating a shift toward high-value consulting, supporting revenue growth and sustained margin expansion.
  
• Strong delivery capabilities and specialized talent position the company for market share gains and pricing power as demand for technology services rises.
  
• Automation, alternative staffing models, regulatory pressures, talent scarcity, and client concentration all threaten ASGN's long-term growth prospects and margin stability.

Catalysts

Engages in the provision of information technology (IT) services and solutions in the technology, digital, and creative fields for commercial and government sectors in the United States, Canada, and Europe.

• Analyst consensus expects TopBloc to contribute meaningfully, but the company is outperforming on both revenue and bookings targets, suggesting this acquisition could rapidly accelerate ASGN's shift into high-value consulting, resulting in higher-than-expected revenue growth and sustained EBITDA margin expansion as these businesses scale.
  
• While analysts broadly point to ASGN's focus on AI, cloud, and cybersecurity services as margin-accretive, the company's deep investments in AI (including an AI Innovation Center, proprietary accelerators, and AI University) are poised to establish ASGN as a preeminent partner for mission-critical modernization, enabling long-term share gains, increasing recurring revenues, and potentially driving structural margin uplift above industry norms.
  
• The accelerating global adoption of AI and automation is set to drive a multi-year talent and consulting demand supercycle, and ASGN's ability to deliver highly specialized, just-in-time talent positions the company to capture an outsized share of this expanding market, underpinning durable double-digit revenue growth.
  
• ASGN's strong nearshore/onshore delivery capability, reinforced by deep partnerships with vendors like AWS and Workday, unlocks unique cross-vertical solutions in both commercial and federal markets, expanding the company's addressable market and supporting sustained customer wallet share and sales growth over the long term.
  
• Persistent and growing shortages of specialized technology and healthcare talent, combined with receding internal IT staffing appetites at Fortune 1000 and public sector clients, are likely to result in structurally higher pricing power for ASGN's services, fostering ongoing net margin expansion and upward earnings revisions as the staffing environment tightens further.

ASGN Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on ASGN compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming ASGN's revenue will grow by 5.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 3.5% today to 4.8% in 3 years time.
• The bullish analysts expect earnings to reach $221.0 million (and earnings per share of $5.21) by about August 2028, up from $140.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 18.4x on those 2028 earnings, up from 15.7x today. This future PE is lower than the current PE for the US IT industry at 27.7x.
• Analysts expect the number of shares outstanding to decline by 2.23% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.72%, as per the Simply Wall St company report.

ASGN Future Earnings Per Share Growth

Risks

• The acceleration of AI and automation across industries may reduce the long-term demand for human-provided IT services, which could shrink ASGN's addressable market and put downward pressure on future revenue growth.
  
• Growing adoption of managed services and direct-to-talent platforms like Upwork and LinkedIn could cause clients to bypass traditional staffing and consulting intermediaries, potentially reducing ASGN's gross margins and impacting top-line revenue over the long term.
  
• Increasing regulatory scrutiny and evolving labor laws around contract labor and staffing models present risks of higher compliance costs and reduced flexibility for clients, which could negatively affect ASGN's net margins and profitability.
  
• Demographic trends, such as an aging workforce and slower population growth in developed markets, may make skilled talent harder to find and more expensive, leading to increased talent acquisition costs and compressing ASGN's margins over time.
  
• Reliance on a handful of large clients and concentration in cyclical industries like technology, healthcare, and government exposes ASGN to macroeconomic downturns or contract losses, increasing the risk of volatile earnings and erratic revenue performance.

Valuation

• The assumed bullish price target for ASGN is $75.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of ASGN's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $75.0, and the most bearish reporting a price target of just $44.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $4.6 billion, earnings will come to $221.0 million, and it would be trading on a PE ratio of 18.4x, assuming you use a discount rate of 10.7%.
  
• Given the current share price of $50.2, the bullish analyst price target of $75.0 is 33.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.