Insperity (NSP) Up 16.6% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Insperity (NSP). Shares have added about 16.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Insperity due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Insperity Q2 Earnings, Revenues Top Estimates, View Up
Insperity reported strong second-quarter 2018 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate.
Adjusted earnings of 68 cents per share surpassed the consensus mark by 8 cents and increased a massive 65.9% year over year. The bottom line gained from double-digit worksite employee growth, solid improvement of gross profit and strategic management of operating costs.The bottom line also surpassed the guided range of 59-63 centsper share.
Total revenues of $922.3 million beat the consensus mark by $17.4 million and increased 15.9% year over year. The top line benefited from a 13.1% increase in average number of worksite employees paid per month and 2.4% increase in revenues per worksite employee per month. Average number of worksite employees paid per month was 203.9 million and revenue per worksite employee per month came in at $1,507.
In the quarter, the double-digit worksite employee growth was driven by strength across new client sales (increased sales activity in mid-market segment), higher client retention (totaled over 99%) and rise in net hiring of worksite employees by the company’s client base (hiring of Business Performance Advisors to boost core client segment growth).
Operating Results
Gross profit of $154.5 million surged 18.4% from the prior-year quarter. Gross margin climbed to 16.8% from 16.4% in the prior-year quarter. The improvement was driven by 13% worksite employee growth, improved pricing and strategic management of direct cost programs. Meanwhile, gross profit per worksite employee per month increased 4.9% year over year to $253.
Adjusted EBITDA was up 39.9% year over year to $46.6 million. Adjusted EBITDA per worksite employee per month increased 22.6% to $76.
Adjusted operating expenses increased 12.4% year over year to $120.9 million. Adjusted operating expenses per worksite employee per month declined 0.5% to $198.
Operating income increased 46.4% year over year to $33.6 million. Operating income per worksite employee per month increased 30.9% to $55.
Balance Sheet & Cash Flow
Insperity exited the second quarter of 2018 with adjusted cash, cash equivalents and marketable securities of $22.6 million compared with $87.5 million at the end of the prior quarter. Long term debt was $104.4 million, in line with the first-quarter figure.
The company generated $17.3 million of cash from operating activities in the first half of 2018. Capital expenditures were $14 million.
In the first half of 2018, Insperity repurchased almost 212,000 shares for $16.2 million and paid dividends totaling $16.8 million.
Q3 Guidance
For third-quarter 2018, Insperity projects adjusted earnings in the range of 80-84 cents per share, representing a year-over-year increase of 40.4-47.4%. Adjusted EBITDA is anticipated to increase 22.9-29.9% to a range of $53-$56 million. Average worksite employees (WSEs) are expected in a range of 213,700 to 215,600, representing 14.5-15.5% growth.
2018 Guidance
Insperity raised its guidance for 2018. The company now projects adjusted earnings between $3.49 per share and $3.53 per share, implying growth of 42.4-44.1%, above the previously guided range of $3.36-$3.44 per share.
Adjusted EBITDA is projected to grow 26.6-28.9% to a range of $225-$229 million. The prior guided range was $218 million to $223 million.
Average WSEs are expected to be in the 207,400 to 209,200 bracket, representing 13.5-14.5% growth. The earlier expected range was between 206,400 and 208,400.
Effective tax rate is anticipated to be around 26%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 10% due to these changes.
VGM Scores
Currently, Insperity has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for growth based on our style scores.
Outlook
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Insperity has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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