By Lisa Thompson
READ THE FULL MHH RESEARCH REPORT
After seven quarters of declining year-over-year revenues, Mastech (NYSE:MHH) reported revenue growth of 8.5% in Q3 2024. Gross margin was again at an all-time high, and income is growing faster than revenues. As a result, we are raising our Q4 2024 and 2025 EPS estimates as gross margins improve and expenses are held in check. Customers are more optimistic after the election and are ready to make long-delayed decisions on projects going forward. Given staffing industry forecasts of a decline of 7%, Mastech is taking market share.
While revenue only grew 8.6%, non-GAAP net income and EPS grew 120% due to the improved margins. The company added 36 billable consultants in the quarter, more than the 31 in Q2. By the end of September, it reached 1,071 billable consultants.
D&A bookings grew to $11.1 million in Q3 compared to $9.2 million in Q2 and $9.6 million reported for Q1 2024. The D&A segment reported year-over-year revenue growth of 16.9%. Total gross margin was again a record, and since D&A has room to improve, it could continue to increase. Expenses are being held in check. In Q4, the consultant fees will drop by $210,00, according to the contract, helping reduce SG&A. The company hopes to reduce SG&A as a percentage of revenues.
We are raising 2024 non-GAAP EPS to $0.71 and 2025 non-GAAP EPS to $0.87 in expectation of higher gross margins than originally expected. If demand improves, we may raise revenue estimates.
Mastech’s enterprise value is now $100 million, up from $76 million in our last report. — or 0.5 times EV/2024 estimated Sales. The stock trades at 11.9 times 2025 non-GAAP EPS on a PE basis despite expected EPS growth of 23%. If we say the stock is worth between 0.8 times EV to sales and a PE of 23 times, the stock price would average $18.50 per share.
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