MHH: Mastech Digital Reports 2022 Revenue Growth of 9% as Customers Grow Cautious
NYSE:MHH
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Mastech (NYSE:MHH) finished the year out showing 9% revenue but a 4% decline in non-GAAP earnings. Revenue growth decelerated throughout the year as interest rates and inflation took their toll on customers who are now somewhat hesitant to spend. After a record Q3, Q4 actually showed declining year-over-year revenues. Big tech has been in the news as it recently went through layoffs on the expectation of a higher cost of capital and a tougher business environment. Despite this, IT salaries continue to hold steady and Mastech has been able to bill at higher rates in IT staffing and maintain its gross margin in that business. Although the company says demand has picked up slightly versus Q4, it is difficult to forecast how 2023 will play out and how fast D&A will get back on track. Adding to that, the company is prepared for the possibility of buying businesses to add to its D&A business.
Although the company is planning for growth in 2023, we are hesitant to forecast much growth given the economy. Temporary workers are typically the first to go in a downturn as well as the first to come back.
In Q3 Mastech parted ways with its new InfoTrellis CEO and on November 14th it appointed Michael Fleishman to replace him. Fleishman comes to Mastech Digital with over 27 years of digital technology experience and a focus on the development of enduring client relationships. Before joining Mastech Digital, Fleishman held successful leadership roles at top global technology services firms, including IBM, Virtusa, and Unisys, and most recently, spearheaded digital transformation for Capital Markets at Cognizant. Mr. Fleishman earned a BS in Aerospace Engineering from Boston University and an MS in Management and Technology from Rensselaer Polytechnic Institute.
The company announced a stock buyback of 500,000 shares to be executed over the next two years with an extension possible. It is limited to buying 25% of the daily volume each day and at the moment that is only an average of fewer than 9,000 shares making the process slow.
Mastech’s valuation remains well below its peers at 0.6 times EV to 2023 estimated revenues, growth should propel the stock closer to parity with its peers at 1.9xs. Even on a PE basis, the stock is inexpensive at only 11.3 times 2023 non-GAAP EPS. We have lowered our 2023 outlook in consideration of the weakening global economy.
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