Mastech Digital, Inc. (MHH) stock intrinsic value fair value estimate & owner earnings analysis

Mastech Digital sells IT staffing (about 83% of revenue) and data and analytics consulting (about 17%, the former InfoTrellis business) to large corporate clients, mostly banks and other financial firms. Revenue was $191.4M in 2025, down from a $242.2M peak in 2022. Ten clients make up 58% of revenue; Fidelity (16.7%), Populus (12.1%) and CGI (10.8%) each exceed 10%. Billable consultants fell from 1,008 to 840 during 2025, and interim results through June 2026 show revenue about 15% below the prior year. WHAT THE BUSINESS EARNS. We measure owner earnings as operating cash flow, less swings in receivables and payables, less stock compensation, less the part of capital spending needed just to stay in business. On that basis the stored ten-year series (per share) runs: 2016 $0.40, 2017 $0.25, 2018 $0.75, 2019 $0.81, 2020 $0.97, 2021 $1.08, 2022 $1.04, 2023 $0.00, 2024 $0.53, 2025 $0.02. The 2020-2022 years were the peak and the conditions behind them have reversed, so we do not treat them as normal. We anchor on 2023-2025, the post-peak business, with 2025 normalized for a $2.0M deferred-compensation payout and a $0.66M severance payout that are unlikely to repeat (the 10-K says the finance and accounting move to India was completed at end-2025 with no further transition costs). That gives roughly $0.25 per share, of which about $0.06 is interest on cash, so operations contribute about $0.19. Stock compensation ($3.1M in 2025) is deducted in full; it is larger than the whole normalized earnings figure, which is a big reason the number is small. Amortization of acquired intangibles ($2.6M a year) is a non-cash add-back, so we let the earnings fade rather than hold them flat. The 2023 goodwill write-off of $5.3M was likewise non-cash and excluded. GROWTH CHECK. Owner earnings in 2025 fell about 95% from 2024, largely from that stock compensation and the one-time payouts; our base case assumes year 1 down 6%, which is better than the trailing figure. The reason is dated: the 2025 payouts and transition costs are stated in the 10-K as non-recurring, and first-half 2026 owner earnings computed the same way were about $2.7M, ahead of first-half 2025 at about $0.25M. We give no credit for growth at all: no signed backlog or repeatable expansion mechanism supports it. CASH. The company has $36.5M of cash (about $3.05 per share), no borrowings and an undrawn $40M revolver. At year-end 2022, when revenue was higher, it ran on $7.1M, so we treat about $29M ($2.46 per share) as excess cash and add it in base and bull. We remove the interest it earns from the earnings stream to avoid counting it twice. This is a judgement call and worth a reader's attention. BEAR ($2.20). Revenue keeps falling at the recent pace as consultants leave and a top-three client is lost; operations contribute about $0.05 per share, shrinking 15% a year, worth about $0.20. Excess cash is haircut to $2.00 for further severance and buybacks, similar to $2-4M of restructuring in each of 2024 and 2025. Together about $2.20. BASE ($3.90). Operating earnings of about $0.19 shrink 6% a year, the pace of revenue decline since 2022, and persist because the firm has served large repeat clients for many years. Worth about $1.45; plus $2.46 excess cash. BULL ($7.20). Cost cuts and the higher bill rates seen in 2025 ($86.10 vs $82.77 per hour) let operations sustain the first-half 2026 run-rate of about $0.39 per share, fading 2% a year, worth about $4.75; plus $2.46 cash. WHAT COULD MAKE US WRONG. Further consultant losses at Fidelity, CGI or Populus would push results toward the bear case; cash may be needed to fund payroll for clients that pay slowly; and first-half 2026 could prove a one-off. Interim quarterly detail could not be reconciled here beyond cash flow totals.