CRA International Upped to Neutral – Analyst Blog

We recently upgraded our rating on CRA International Inc. (CRAI) to Neutral from Underperform. The company provides legal, regulatory, business consulting and other expert services through its specialized consultants across the globe. The rating was raised on the back of 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 slightly dearer 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 still remain cautious on the stock as positive impacts will likely be marred by clients hesitant 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.

 

 

 

CRA International’s second-quarter adjusted operating earnings of 19 cents per share were ahead of the Zacks Consensus Estimate of 15 cents per share but substantially lower than the earnings of $3.0 million or 28 cents per share reported in the year-ago period. On a GAAP basis, CRA International incurred a loss of $1.5 million or 14 cents per share in stark contrast to a gain of $1.2 million or 11 cents per share recorded in the comparable quarter last year.

 

Total revenue, excluding NeuCo revenues, jumped 15% to $66.3 million on a year-over-year basis. Including NeuCo, revenues fell 5.4% year over year to $68.0 million. 

 

 

 

Subsequent to the release of second-quarter results, the analysts raised their full-year fiscal 2010 estimate to 88 cents per share and fiscal 2011 estimate to $1.35 per share from 86 cents and $1.32, respectively, just 7 days ago, based on improving growth prospects and fundamentals of CRA International.

 

 

 

CRA International is a fairly valued stock with a price-to-book ratio of 1.0 time, well under the industry average of 3.8 times.

 

The quantitative Zacks Rank for CRA International is currently “3″, indicating no directional pressure on the shares over the near term.

 

CRA International is upgraded to Neutral based on its expectation to benefit from the improving international operation resulting into lower tax rate, win in new engagements, and pick up in utilization, strong restructuring actions, increased demand for services and a strong merger and acquisition environment.