CRA International Inc. (CRAI) reported second quarter 2010 earnings on June 10, 2010, surpassing the Zacks Consensus Estimate by 4 cents.
 

During the second quarter 2010, CRA International’s total revenues, excluding NeuCo revenues, jumped 15% year over year to $66.3 million due to an increase in demand for both the litigation and management consulting businesses.
 
During the reported quarter, CRA International’s results were largely impacted by an improving utilization rate on the back of successful restructuring initiatives. The utilization rate shot up 500 basis points to 65%, showing signs of a recovery in consumer spending.
 
(Read our full coverage on this earnings report: CRA International Beats)


Earnings Estimate Revisions: Overview


Estimates have moved up for CRA International since the earnings release, with analysts being optimistic about the long-term performance of the company. The earnings estimate details are discussed below.
 
Agreement of Estimate Revisions

In the last seven days, one analyst has reduced and one has increased the estimate for both fiscal 2010 and 2011, thus providing no directional movement. Revision trends in the last 30 days drifted toward the positive side with one negative change. For both fiscal years 2010 and 2011, two out of 4 analysts covering the stock have raised their estimates and one has reduced. Positive revisions by analysts are based on the expectation of increase in revenue driven by a higher utilization rate.
 

Magnitude of Estimate Revisions

The table below indicates that earnings estimates over the last 30 days have spiked by 2 cents to 88 cents in fiscal year 2010 and by 3 cents to $1.35 for fiscal 2011. The magnitude of estimate revisions indicates that analysts are optimistic regarding the fundamentals of CRA International and its growth prospects.

Our Recommendation
 
We recently upgraded our rating on CRA International to “Neutral” from “Underperform”. The company provides legal, regulatory, business consulting and other expert services through specialized consultants across the globe. The rating was raised on the back of positive second-quarter 2010 earnings results, which were modestly ahead of the Zacks Consensus Estimate. This was mainly due to better-than-expected revenues, partially offset by the overall cost structure.
 
In the quarter, CRA International benefited from the slow but improved growth from litigation and management consulting services, higher utilization rate and a recovery in its international operations. We expect sustained improvement in utilization and successful restructuring activities to be the key catalysts for the company’s growth.
 
However, we remain cautious on the stock as positive impacts will likely be marred by the hesitation of clients to spend aggressively on major consulting projects. Although demand remains solid within the majority of the company’s business practices, it has been slow to improve profitability. Absence of definite management guidance also indicates the lack of long-term visibility on the stock.
 
Accordingly, we maintain a Zacks #3 Rank (‘hold’), which translates into a short-term Neutral recommendation. Our long-term recommendation for the stock remains middle-of-the-road at Neutral.
 
Apart from CRA International, another stock that promises long-term growth opportunities is Towers Watson & Co. (TW), which currently has a Zacks #2 Rank (‘buy’), translating into a short-term Buy recommendation.
 
 
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/

Read the full analyst report on “CRAI”
Read the full analyst report on “TW”
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