ALIT - Alight Q3 Earnings: Good But Not Great

2023-11-01 12:13:02 ET

Summary

• Alight, Inc. reported Q3 earnings with EPS beating expectations and revenue missing by $16.48 million.
• The stock is up nearly 10% post-earnings, but a pullback is possible.
• Alight increased its FY 2023 EPS guidance and showed growth in employer solutions revenue, but still has high debt and general expenses.

Alight, Inc. ( ALIT ) has just reported its Q3 earnings as covered here by Seeking Alpha. EPS beat by 1 cent while revenue missed by $16.48 million. The stock is up nearly 10%, although we cannot rule out a pullback on such post-earnings move. This article looks at The Good, The Bad, and The Ugly from Q3's report. But before we dive into Q3 results, a quick introduction to the company.

What Does Alight Do?

Alight, Inc. is a professional services company providing cloud-based solutions centered around benefits, health, and human capital management. Alight, Inc. is headquartered in Lincolnshire, Illinois, and reported $3.1 billion in revenue in 2022. The company, in its current form, was founded in 2017 and went public in July 2021 as part of a SPAC merger . The stock has lost about 50% of its value from its 2021 peak and is now trading between $6 and $7. I recently came across this company when I heard about alternatives to the current human capital management platform used by our company. This sector is highly competitive, with many small and large public companies as well as private companies fighting for market share.

The Good

• Although the EPS beat was marginal, it stretches Alight's EPS beat streak to 7 consecutive quarters , with the last miss coming in December 2021. Although revenue missed the estimates, it was up 8.40% YoY compared to the $750 million in Q3 2022. So, the stock's premarket positive reaction seems to be making sense, especially for what appears like an undervalued stock as covered below.

• Alight increased its FY 2023 EPS guidance to be between 65 cents and 69 cents a share, which gives the stock a forward payout ratio slightly above 10. When you factor in the expected earnings growth rate of 10%/yr over the next 5 years, the stock is trading at a Peter Lynch-esque Price-Earnings/Growth [PEG] of 1.
• I like the fact that Employer solutions revenue grew almost 9% YoY to reach $701 million, despite already having the lion's share of the revenue compared to professional services, which grew at 10.5% to reach $105 million from a smaller base of $95 million in Q3 2022. As I've written in a few of my past articles, products tend to have higher margins and stickiness compared to services. The product (solutions) segment representing 87.50% of the total revenue and still growing at a nice pace augurs well for future profit margin expansion.

For further details see: