We are downgrading our rating on CRA International Inc (CRAI) to Neutral from Outperform. The company provides legal, regulatory, business consulting and other expert services through its specialized consultants across the globe.
We are optimistic about the company’s cost-saving initiatives, which drove double-digit growth in operating margin for the first time in two years. Moreover, business conditions have started to improve with a healthy new business lead flow, an improved conversion rate and an active pipeline of both litigation and management consulting businesses.
Additionally, we believe the company’s growth initiatives, healthy cash balance, new business wins and international expansion will help generate positive results going forward.
However, we remain on the sidelines given the cautious approach adopted by the clients regarding their aggregate spending. The global market downturn and credit crunch among clients have severely marred the growth prospects of new businesses, leading to low demand and a higher cost structure. Furthermore, the market for economic, litigation support and management consulting services is intensely competitive, highly fragmented and subject to rapid changes.
CRA International faces stiff competition from FTI Consulting, Inc (FCN) and Navigant Consulting Inc (NCI). The company is also exposed to challenges in the international markets attributable to the difficulties associated with the management of foreign operations, currency fluctuations, unexpected changes in trading policies, tariffs and other barriers and regulatory stringencies due to an uncertain global economy.
Furthermore, much of the positive attributes in CRA International’s stock is reflected in the current share price and there is only limited scope for upside. Additionally, estimates have not budged in the last 60 days, implying no near-term catalysts.
Based on the above fundamentals, we expect the stock to perform in line with the market. CRA International currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.
CRA INTL INC (CRAI): Free Stock Analysis Report
FTI CONSULTING (FCN): Free Stock Analysis Report
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