Insperity, Inc (NYSE:NSP) Pops, Double-Digit Gains Are Still Ahead

Insperity Is My New Favorite Labor Market Stock

I’ve long been a fan of the labor market and the labor market stocks. The data is easy to track and the companies serving the labor market tend to make good money and pay good dividends. The pandemic didn’t change, at least not for me. Last week, when Automatic Data Processing (NASDAQ:ADP) reported its 3rd quarter the results reinforced a position I already held.

This week, when Insperity, Inc (NYSE:NSP) reported, it emerged as my new favorite labor market stock. The company is, in the most basic terms, a small and mid-cap focused version of ADP. The company offers a full array of human resources and financial services for both employers and employees. Among them and setting it apart from the competition, however, is a cloud-based eCommerce portal for small businesses.

A Mixed Quarter For Insperity Is No Reason To Sell

Insperity was not immune to the pandemic but it has weathered the storm well. The reopening and rebound in economic activity has had an impact on YOY growth but those effects are dissipating fast. The Q3 revenue came in at $1.01 billionwhich is down -2.9% from last year but up 1.6% from the previous quarter. The top-line results are also better than consensus by 300 basis points and driven by a combination of WSEE’s and higher pricing. WSEE’s or Worksite Employees paid through the company rebound 1.7% sequentially while pricing is up 4.4% over the same period last year.

Moving down to the bottom-line results, both GAAP and adjusted EPS beat the consensus by wide margins. GAAP EPS of $0.57 beat by $0.22 while the adjusted EPS of $0.91 beat by more than 100% to grow 21% YOY. That’s right, the consensus was $0.45 and failed to account for performance-driven stock-based compensation awards as well as the underlying strength in the business. On a YTD basis, adjusted EBITDA is up 20% and fueling a 16% increase in adjusted EPS.

“We are pleased with our recent sequential growth and expect paid worksite employees to return to near pre-pandemic levels by the end of the year,” said Douglas S. Sharp, Insperity senior vice president of finance, chief financial officer and treasurer. “Additionally, strong execution in pricing, effective management of our direct cost programs and operating expenses, and the dynamics of the pandemic on our business has driven our recent substantial outperformance.”

WSEE’s are still down on a YOY basis by -3.8% but expected to reach near to pre-COVID levels by the end of the year. The company is guiding another 2.0% to 3.0% improvement in WSEE’s during the 4th quarter due to returning and new employees. The only bad news is that this growth won’t translate into EPS because of the expected timing of health-related expenditures.

Insperity Is A High-Growth Dividend Growth Stock

Insperity is a solid dividend payer, to say the least. The company has been raising its dividend for the last 10 years and is not afraid to issue a special payment or stock-split to boot. In terms of growth, the company has been increasing with a 29% 5-year CAGR and I see no reason why the next increase won’t be comparably good. The balance sheet has a bit of debt on it, debt-to-equity is running near 500%, but there is enough cash on hand to pay it all off and have a sizeable chunk left over.

 Regarding cash-flow and coverage, the company’s leverage is very low and there is ample free-cash-flow. One evidence of the company’s balance sheet strength is the buyback program. The board of directors just authorized another 1 million shares worth about $83,200,000 at current price levels.

The Technical Outlook: Insperity Signals Continuation

Shares of Insperity popped nearly 10% following the 3Q news and indicate a continuation of the uptrend that began in March. Today’s move not only confirms support at the pre-COVID high but it is accompanied by bullish indicators. Both stochastic and MACD are pointing higher which suggests building strength within the market. The caveats are that stochastic is high in the range and MACD is still a little weak. At this level, the market could be considered to be overbought but those conditions can persist for some time before a correction occurs. In the near-term, price action may pull back before moving higher, possibly to $80 or a little lower. Longer-term it looks like this stock could easily gain 25% to 50% over the next few quarters.