Call of the Week: A Sweet-Spot Pick for Improving Healthcare/Employment Trends

Last week at Singular Research, we initiated coverage on what we think is a company with a nice sweet spot to grow in this current economy. The company provides information technology and staffing solutions for clients in the tech, healthcare, financial, energy and other industries. Within healthcare, the company has seen strong growth in electronic medical record applications and services. We see solid potential in both the company’s staffing and IT consulting businesses.

As such, we’ve initiated a Buy rating on Computer Task Group, Inc. (CTGX). Frank DiLorenzo, Singular’s equity analyst covering the company, has a price target of $19 for the company, which is currently trading around $13 per share. We like CTGX’s positioning and potential for sustainable growth. As noted earlier, the company’s staffing business has strong potential in the typically stable healthcare industry, and its consulting business is seeing increased demand as companies are upgrading systems and technology in this slow-growth economy. CTGX also  represents attractive value, trading at 15x our 2012 EPS estimates. Over the next couple of years, we actually expect the company to grow at a rate of 20 percent or more.

While its IT consulting business comprises about 35 percent of the company’s focus, we think healthcare is where the real growth driver is at, primarily in electronic medical records. Currently, the higher-margin healthcare solutions segment makes up about 30 percent of the company’s business, but it’s also been the company’s fastest growing segment.

In addition, the company also has a major partnership with IBM (IBM), which is responsible for about 30 percent of the company’s revenues. It is important to note that while Computer Task Group is contracted to be a supplier to IBM for the next three years, there is no guarantee that there will be continued extensions. With that said, we do think that the relationship is a positive for CTGX at this point. So, the general trends in IT demand, employment rate, and in healthcare bode well for the company going forward.

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