Page 1

Analyst: Victor Sula, Ph.D. Initial Report May 20th, 2009

PESI daily




400 300 200 100


6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5

0 Mar




Share Statistics (04/29/09) Symbol Current price Low/ High 52 weeks Average Volume Market Cap Dil. Shares Outstanding


% Chg






60 bp

2007 CITP

Revenues, $ Mn.


Gross margin

$1.56 - 12.98

Operating margin



-1,340 bp


Net margin



1,340 bp

EPS, $




$112.8 Mn 19.6 Mn

Recommendation The Company’s strong balance sheet and an established plan to preserve its core infrastructure while carefully managing costs, its ability to generate cash during the downturn, and reduce debt balances and securely position itself as the economy begins to improve, builds our confidence in the Company’s ability to show substantial gains in the future. In addition, even while IT hiring is decreasing during the recession, the need for quality information technology and staffing services remains high. Accordingly, we rate CITP as a Speculative Buy.

Highlights The Company serves a broad and diversified customer base with more than 1,000 corporate and government clients, including some of the largest users of IT services in the United States. These clients operate across a wide range of industry sectors, including financial services, telecommunications, manufacturing, information technology, government, pharmaceutical, biotechnology and transportation. CITP’s customer base COMSYS IT Partners Inc. (Nasdaq: CITP)


Analyst: Victor Sula, Ph.D. Initial Report May 20th, 2009

COMSYS IT Partners Inc. (CITP) is an information technology (IT) services company that provides IT staffing and project implementation services in the United States. The Company offers consultants and project managers for contract assignments and full-time employment in various technology disciplines; professional project-based consultants, staff augmentation resources; and recruiting support to the functional lines of business within the financial services industry.

includes approximately 72% of the Fortune 50 companies and approximately 30% of the Fortune 500 companies.

CITP also provides a wide range of technical services and solutions addressing requirements across the enterprise, including Web site development and integration, application programming and development, client/server development, systems software architecture and design, systems engineering, and systems integration services.

As the global economy worsened and unemployment in the U.S. has been on a steady climb during 2008, CITP experienced a decline of both bill rates and billable hours. The deteriorating economic environment affected the Company`s business in 2008 and it has continued into 2009. During the first quarter of 2009, the Company’s billable hours decline by approximately 12% over the same period last year. Average bill rates were $71.63 in the first months of 2009, down sequentially from $72.05 in the fourth quarter due to pricing pressures at large clients. There might be further declines in bill rates until the economy stabilizes.

The Company has 52 offices in 27 states as well as in Puerto Rico, Canada and the United Kingdom. It is the fourth largest IT staffing company in the U.S with approximately 830 staff employees and 4,500 consultants and over 1,000 customers across a wide range of industries. CITP recruit consultants through its internal proprietary database that contains information about more than 800,000 candidates. CITP operates through eight wholly-owned subsidiaries. The Company was founded in 1995 and is headquartered in Houston, Texas.

CITP’s TAPFIN Process Solutions division is a leading business process outsourcing provider of end-to-end human capital fulfillment and management solutions within three core service areas: vendor management services, services procurement management and recruitment process outsourcing. TAPFIN’s suite of solutions also includes human resource outsourcing and executive search that can be tailored to companies of varied sizes and industry focus.

The Company is pursuing an active acquisition strategy. From 2005 to 2008, the Company purchased all of the outstanding stock of: Pure Solutions Inc., an information technology services company with operations in California; Econometrix Inc., a California-based vendor management systems software provider; Plum Rhino Consulting LLC, a specialty staffing services provider to the financial services industry; and Praeos Technologies Inc., an Atlanta-based provider of IT consulting services specializing in the business intelligence and business analytics sectors. CITP’s latest acquisition is ASET International Services Corp., a Virginiabased provider of globalization, localization and interactive language services acquired in May 2008 and which contributed with $50 million to the Company’s revenue. Net loss in 2008 was $65.2 million or $3.19 per diluted share down from net income of $33.3 million or $1.67 per diluted share in 2007. Net loss in Q1 2009 was $1.9 million or $0.09 per share down from net income of $5.1 million or $0.25 per share in the Q1 2008. Analysts surveyed by Thomson Reuters expect CITP to earn $-0.01 per share on revenue of $589 million this year. For 2010, they estimate profit will be $0.28 per share on revenue of $576 million. The Company’s shares experienced a large move downward since October 2008 when the stock declined from nearly $10 to $2 in the middle of November 2008. Since then, the stock has increased

COMSYS IT Partners Inc. (Nasdaq: CITP)


Analyst: Victor Sula, Ph.D. Initial Report May 20th, 2009


3 Mo.

1 Yr.

3 Yr. (Ann)

Price Change




Last Qtr.

12 Mo.


-2.2 n/m

n/m n/m


Revenues EPS

-11.3 n/m



Ind Avg

S&P 500

TTM 5 Yr. Avg.

-59.4 -31.2

2.11 9.84

19.98 20.15

P/S comparison

to more than $5.50. We believe the Company’s stock has decent upside potential, since the restructuring program is likely to bring improvements to overall profitability, despite the declining revenues.

Financial Analysis The Company’s revenues for 2008 and 2007 were $727.1 million and $743.3 million, respectively, representing a decrease of 2.2%. The decrease was mainly due to bill rate pressures from CITP’s customers, particularly among Fortune 500 clients. Revenues from the pharmaceutical and biotechnology and government sectors increased by 17.4% and 34.7%, respectively, in 2008 from 2007. These increases were partially offset by revenue decreases of 21.1% and 21.9% from the telecommunications and financial services sectors, respectively, over the same period. Vendor management related fee revenue decreased 18.5% to $23.1 million in 2008. The Company’s gross margin slightly declined to 24.3% in 2008 from 24.9% in 2007. This decline mainly resulted from lower permanent placement revenue and the decline of CITP`s staffing business Gross margin declined by 100 basis points in Q1 2009 versus the same period last year. The Company generated $37.4 million of cash flow from operations in 2008. CITP ended 2008 with $69.7 million of debt net of cash including the $20 million of treasury holdings. The Company succeeded to reduce its debt to $58.8 million in the first quarter of 2009. CITP intends to reduce its debt level during 2009 although at a slower rate than 2008 in line with expectations for lower revenue. In March 2009, the Company made certain amendments to its existing credit facility, including extension of its maturity date for two years from March 31, 2010, to March 31, 2012. After completing the amendments, the Company had outstanding revolving credit borrowings of approximately $61.5 million, enough to insure access to liquidity in the current credit environment.

Industry analysis

Unemployment in the U.S. has been on a steady climb hitting 8.5% in March, the highest in a quarter-century, as employers axed 663,000 more workers and pushed the nation’s jobless ranks past 13 million. The U.S. IT staffing services market is highly competitive and fragmented. SIA estimates North America IT staffing revenue in 2008 to be approximately $21.5 billion. Industry analysts are projecting the industry will continue to contract throughout all of

COMSYS IT Partners Inc. (Nasdaq: CITP)


Analyst: Victor Sula, Ph.D. Initial Report May 20th, 2009




INCOME STATEMENT Net Sales ($mil) Gross profit ($mil) EBITDA ($mil) EBIT ($mil) Net Income ($mil)

743.3 185.2 31.5 25.1 33.4

727.1 176.9 -62.6 -70.6 -65.2

BALANCE SHEET Cash & Equiv. ($mil) Total Assets ($mil) Total Debt ($mil) Equity ($mil)

1.6 402.5 71.9 144.6

22.7 351.2 69.7 83.5

PROFITABILITY EBITDA Margin Operating Margin Sales Turnover Return on Assets Return on Equity

4.2% 5.8% 1.91 8.3% 23.1%

-8.6% -7.6% 1.93 -18.6% -78.1%

DEBT Current Ratio Debt/Capital Interest Expense ($mil) Interest Coverage

1.05 33.1% 8.3 3.0

1.20 45.5% 5.5 n/m

20.1 1.66 7.19 n/a 114,915

19.6 -3.19 4.26 70% 154,275

SHARE DATA Dil. Shar. Outst.(mil) EPS Book value / share Institutional Own % Avg Daily Volume

Computer Economics conducted a special survey October 2008 that revealed that more IT organizations are cutting IT spending. Reflecting the current economic downturn, budget restraints and corporate layoffs were the most cited reasons for these decreases. However, IT spending cuts do not include widespread reduction in IT staffing levels. Essentially, at the median, IT executives expect both IT spending and staffing growth to be flat in 2009. According to a new research report, 2009 IT Hiring Outlook, released by Veritude, most respondents (74%) with IT staffing needs will use or will consider using a staffing provider. There was an increase in the number of respondents who value a provider’s ability to manage changing workforce demands (up from 8% to 15%), as well as an appreciation of the ability of HR to focus on more strategic initiatives (up from 4% to 12%). Meanwhile, the size of the global IT service industry in 2007 was estimated to be US $517 billion. Despite the current economic downturn, continued IT expenditures by the companies are driving the growth of the global IT service industry. IDC predicts the size of the global IT service industry will reach $678 billion by 2012 to show 5.6% CAGR from 2007.

Analyst opinion

Source: SEC filings; analyst estimates.

Like most of its peers, the Company experienced declining revenue in 2008. However, despite the challenges it faces from this downturn, the Company is positioned to both weather this economic storm and, as importantly, to take advantage of the subsequent recovery. The Company has a strong balance sheet which should help it to maintain core infrastructure during recession. Additionally, the two-year extension of debt facility to March 2012 should give the Company the financial flexibility to make appropriate investments in its business. In November 2008, the Company announced a restructuring of its business. To date, the $4.5 million restructuring has essentially been completed. The Company anticipates a greater penetration of its service offerings with its current clients, introducing new service offerings to its customers, and obtaining new clients. Alongside its internal growth strategy, the Company pursues strategic acquisitions that complement or enhance its business. Thus, CITP latest acquisition – ASET - should enable CITP’s existing globalization practice to substantially expand its reach and current customers should benefit greatly.

COMSYS IT Partners Inc. (Nasdaq: CITP)


Analyst: Victor Sula, Ph.D. Initial Report May 20th, 2009

Consensus Estimates CITP

FY 2009 31-Dec-09

FY 2010 31-Dec-10

EPS, $ Revenue, $Mil

-0.01 589

0.28 576

Rev. consensus estimates, $Mil.


Revenue, $ Mn




899.3 284.6 912.7 1,659 195 3,083 1,697

941.8 306.3 936.3 1,728 207 3,089 1,723

5% 8% 3% 4% 6% 0% 2%


CDI Corp. Computer Task Group Inc. Kforce Inc. MPS Group Inc. RCM Technologies Inc. Robert Half International Inc. Spherion Corp.

Ticker Symbol

Price per Share, $

P/E Mrkt. Cap. $ Mn 2009 2010


12.74 4.20 10.38 7.60 1.30 23.85

236.3 76.7 398.1 703.0 17.0 3,621

98.00 12.00 31.45 95.00 65.00 103.70

49.00 10.00 23.59 34.55 6.84 55.47










Median COMSYS IT Partners Inc.




Source: Thomson Reuters.

4% 589


Comparative analyses Company Name 07-May-09

consensus estimates are provided by Thomson Financial

Ticker Symbol

According to analyst consensus estimates, CITP is likely to weather the impact of global financial crises on its business in 2009 and to report strong earnings in 2010. The Company seems strongly undervalued as compared to the peer group median 2010 P/E ratio.



Source: Thomson Reuters.

EPS. consensus estimates, $ Ticker Symbol CDI CTGX KFRC MPS RCMT RHI SFN

EPS, $

2009 0.13 0.35 0.33 0.08 0.02 0.23 -0.07



0.26 0.42 0.44 0.22 0.19 0.43 0.02

100% 20% 33% 175% 850% 87% n/m 93%

Median CITP




Source: Thomson Reuters.

COMSYS IT Partners Inc. (Nasdaq: CITP)


Analyst: Victor Sula, Ph.D. Initial Report May 20th, 2009

Disclaimer DO NOT BASE ANY INVESTMENT DECISION UPON ANY MATERIALS FOUND ON THIS REPORT. We are not registered as a securities broker-dealer or an investment adviser either with the U.S. Securities and Exchange Commission (the “SEC”) or with any state securities regulatory authority. We are neither licensed nor qualified to provide investment advice. The information contained in our report should be viewed as commercial advertisement and is not intended to be investment advice. The report is not provided to any particular individual with a view toward their individual circumstances. The information contained in our report is not an offer to buy or sell securities. We distribute opinions, comments and information free of charge exclusively to individuals who wish to receive them. Our newsletter and website have been prepared for informational purposes only and are not intended to be used as a complete source of information on any particular company. An individual should never invest in the securities of any of the companies profiled based solely on information contained in our report. Individuals should assume that all information contained in the report about profiled companies is not trustworthy unless verified by their own independent research. Any individual who chooses to invest in any securities should do so with caution. Investing in securities is speculative and carries a high degree of risk; you may lose some or all of the money that is invested. Always research your own investments and consult with a registered investment advisor or licensed stock broker before investing. Information contained in our report will contain “forward looking statements” as defined under Section 27A of the Securities Act of 1933 and Section 21B of the Securities Exchange Act of 1934. Subscribers are cautioned not to place undue reliance upon these forward looking statements. These forward looking statements are subject to a number of known and unknown risks and uncertainties outside of our control that could cause actual operations or results to differ materially from those anticipated. Factors that could affect performance include, but are not limited to, those factors that are discussed in each profiled company’s most recent reports or registration statements filed with the SEC. You should consider these factors in evaluating the forward looking statements included in the report and not place undue reliance upon such statements. We are committed to providing factual information on the companies that are profiled. However, we do not provide any assurance as to the accuracy or completeness of the information provided, including information regarding a profiled company’s plans or ability to effect any planned or proposed actions. We have no first-hand knowledge of any profiled company’s operations and therefore cannot comment on their capabilities, intent, resources, nor experience and we make no attempt to do so. Statistical information, dollar amounts, and market size data was provided by the subject company and related sources which we believe to be reliable. To the fullest extent of the law, we will not be liable to any person or entity for the quality, accuracy, completeness, reliability, or timeliness of the information provided in the report, or for any direct, indirect, consequential, incidental, special or punitive damages that may arise out of the use of information we provide to any person or entity (including, but not limited to, lost profits, loss of opportunities, trading losses, and damages that may result from any inaccuracy or incompleteness of this information). We encourage you to invest carefully and read investment information available at the websites of the SEC at and FINRA at http://www. All decisions are made solely by the analyst and independent of outside parties or influence. I, Victor Sula, Ph.D, the author of this report, certify that the material and views presented herein represent my personal opinion regarding the content and securities included in this report. In no way has my opinion been influenced by outside parties, nor has my compensation been either directly or indirectly tied to the performance of any security listed. I certify that I do not currently own, nor will own and shares or securities in any of the companies featured in this report. Victor Sula, Ph.D. - Senior Analyst Victor Sula, Ph.D. has held the position of Senior Analyst with several independent investment research firms since 2004. Prior to 2004, Mr. Sula held Senior Financial Consultant positions within the World Bank sponsored Agency for Restructuring and Enterprise Assistance and TACIS sponsored Center for Productivity and Competitiveness of Moldova, where he was involved in corporate reorganization and liquidation. He is also employed as Associate Professor at the Academy of Economic Studies of Moldova. Mr. Sula earned his Ph.D. degree in 2001 and bachelor’s degree in Finance in 1997 from the Academy of Economic Studies of Moldova. Mr. Sula is currently a level III candidate in the CFA program.

COMSYS IT Partners Inc. (Nasdaq: CITP)