Neglected digital human capital stock could double
Investors can be optimistic about ALIT stocks
Ignite Inc (NASDAQ: ALIT) is a prime example of when bad things happen to good deeds. Alight stock may be down 24% year-to-date, but the company has released strong quarterly results and provided solid guidance.
Perhaps that’s why Wall Street is so bullish on ALIT shares, with analysts providing a 12-month share price target of between $12.50 and $15.00. This indicates potential gains in the range of 50% to 82%.
There are reasons to be optimistic about Alight’s stock.
At first glance, Alight Inc looks like your typical cloud-based company that sells software to a slew of blue chip companies. What sets Alight apart is its target audience: companies trying to create a healthy work environment that empowers their employees.
Before the COVID-19 pandemic, this might not have seemed like a big deal. But in the post-pandemic environment – where 40% of the workforce is considering quitting and growing numbers of people cite stress, burnout, workplace well-being and balance as reasons for kicking down their boss’ door – digital human capital and business solutions don’t seem like a quirky idea. (Source: “40% of workers plan to quit their jobs soon – Here’s where they’re going”, CNBC Make It, July 20, 2022.)
On the contrary, the need for Alight Inc’s human resources technology will increase. Many employees these days are, it seems, less concerned with how much money they make than with the underlying integrity of their employer and whether it aligns with their own values.
According to a survey by Alight, more than half (61%) of Gen Z workers say environmental and social responsibility is a must for potential employers. Half (51%) also said they would only work for a “goal-driven” company. At the bottom of the list, 29% of Gen Z respondents said salary was a big issue. (Source: “Company purpose and values are direct drivers of employee productivity, Alight study finds”, Alight Inc, September 6, 2022.)
This is where Alight comes in.
Chart reproduced courtesy of StockCharts.com
Alight Inc. Overview
Alight Inc is a leading cloud-based provider of integrated digital human capital and enterprise solutions. Its goals are lofty: to enrich the health, wealth and well-being of employees. This, in turn, helps organizations achieve a high performance culture.
Alight uses artificial intelligence (AI) and proprietary data analytics to optimize business process as a service (BPaaS) and deliver superior results to employees and employers across multiple departments. (Source: “Alight Reports Second Quarter 2022 Results”, Alight Inc, August 3, 2022.)
The Company operates through three segments: Employer Solutions, Professional Services and Hosted Enterprise.
Alight Inc’s services include integrated benefits administration, healthcare navigation, financial health, employee wellness, payroll, cloud deployment, and consulting services.
The company’s customers include more than 70% of Fortune 100 companies.
High Q2 benefits & Revenue increase
For the second quarter ended June 30, Alight Inc reported that its revenue increased 6.4% to $715.0 million. The company also moved to profitability of $52.0 million, or $0.10 per share, after a loss of $4.0 million in the second quarter of 2021. (Source: ibid.)
Alight Inc’s BPaaS revenue increased 36.2%, representing 17.9% of the company’s total revenue. Based on total contract value, the company’s BPaaS bookings were $234.0 million in the second quarter and $356.0 million year-to-date. That’s more than half of the company’s bookings target for 2022, which is $680.0-700.0 million.
Alight Inc’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $142.0 million, compared to $145.0 million in the same period last year. The slight decrease is due to a 6.5% growth in adjusted EBITDA in Employer Solutions, offset by a reduction in adjusted EBITDA in Professional Services.
During the second quarter, Alight Inc secured customers and expanded its relationships with AutoZone Inc. (NYSE:AZO), Siemens Energy SA (ETR: ENR, OTCMKTS: SMEGF), Unilever plc (NYSE: UL), Home Depot Inc. (NYSE: HD), and Geodis.
Alight Inc reaffirmed its outlook for 2022:
- Revenue in the range of $3.09 billion to $3.12 billion
- Adjusted EBITDA between $650.0 and $662.0 million
- Adjusted diluted earnings per share (EPS) between $0.54 and $0.60
- Total BPaaS contract value reservations in the range of $680.0-700.0 million
Alight Inc also provided guidance for the second half of 2022.
For the third quarter, the company expects revenue of $735.0 to $750.0 million and adjusted EBITDA of $115.0 to $125.0 million. For the fourth quarter, it forecasts revenue of $915.0 to $930.0 million and adjusted EBITDA of $245.0 to $255.0 million.
Alight Inc is a fabulous but undervalued tech company that continues to post wonderful financial results.
While Alight’s shares have taken a hit, the company’s outlook is bright. Over the past five years, it has grown its estimated total addressable market by 112%, from $33.0 billion to $73.0 billion, by adding key content and leveraging its platform build” Alight Worklife”.
In the second quarter, Alight Inc rolled out a major update to Alight Worklife, launched “Alight Digital Wallet”, went live with its biggest customer ever and secured new customers, resulting in a increased revenue and BPaaS bookings.
With all these developments, the ALIT stock is set to eventually double in value.