MHH: Mastech Digital Reports Q1 Revenue Growth of 20% and Reaps Rewards of a Tight Labor Market

By Lisa Thompson

NYSE:MHH

READ THE FULL MHH RESEARCH REPORT

While the Data & Analytics business has been the darling of Mastech MHH, the strong labor market and a rudderless D&A operations proved the reverse this quarter. Staffing performed extremely well from the strength of labor market in general, and the acceptance of the company's new off-shore staffing offering that has gotten traction with customers. Surprisingly, growth in staffing was higher than the D&A business albeit at lower margins. D&A has a new CEO with extensive experience that has been on board only a month. He is optimistic about the business and is intent on cross selling to Amberleaf clients and pursuing new opportunities. Acquisitions have been put on the back burner until internal growth can be sorted out. One feature about being part of Mastech that he pointed out was the unique ability to find expertise in D&A quickly as the company has a huge recruiting effort that can be tapped for D&A, allowing that business to get up and running on new projects quickly with exceptional talent.

We are lowering EPS estimates for 2022 due to higher than expected spending which is expected to be at the same level in Q2 and increase from there. We are now looking for a non-GAAP EPS of $1.37 for 2022. With a valuation well below its peers at 1.0 times EV to 2022 estimated revenues, growth should propel the stock closer to parity with its peers at 2.3xs. Even on a PE basis the stock is inexpensive at only 10.0 times 2023 estimates.

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