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Aggressive Growth

Bill Wilton

Transcend Services

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Transcend Services (TRCR) is coming off a solid quarterly report, thanks to the smooth integration of its newest acquisition.

This Zacks #1 Rank (Strong Buy) has double-digit growth, increasing estimates and attractive valuations.

Company Description

Transcend Services provides clinical documentation services for healthcare organizations, included transcription, data extraction and reporting tools.

Better Than Expected Quarter

Transcend Services announced fourth-quarter and year-end results on Feb 3 which turned out to be better than expected. Earnings per share for the quarter came out to 27 cents, beating the Zacks Consensus Estimate by a penny.

Revenue for the quarter was up 26% to nearly $27 million. Much of that increase was due to the acquisition of Heartland, but organic revenue growth was still an impressive 9%. Transcend Services was expecting the October acquisition to weigh on margins in the short term, however they actually were able to expand those margins.

Bullish Outlook

Analysts quickly raised estimates for full-year 2011 and 2012 on the news. The Zacks Consensus Estimate for this year is up 7 cents, to $1.20. Next year's forecast also rose 7 cents on average, to $1.37.

If Transcend Services meets these targets, the annual growth rates will be 38% and 14%, respectively.

Valuations

Shares of TRCR are trading with some attractive valuations, in addition to those double-digit growth rates. The PEG ratio is coming in a shade under 1.0, which means that the growth rates are priced at a slight discount.

The forward P/E is about 17 times, which won't necessarily woo tradition value investors, but is in line with the peer group. TRCR has a price to sales ratio near 2.2, better than the industry mean.

The Chart

TRCR has developed a nice level of support over the recent months, limiting some of the downside risk. Now, with the rising estimates on the recent quarterly report, there is a good case for shares to move even higher.

Transcend Services - ticker TRCR >

 
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Bill Wilton is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Small Cap Trader service

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