Kenexa in Legal Hassle

Kenexa Corp. (KNXA - Analyst Report) provides software applications solutions that help organizations recruit and retain employees.

In June, a class action lawsuit was filed against Kanexa by a shareholder of the company. This lawsuit was filed as some of its officers and directors failed to disclose certain facts about the company's previous SEC filings. These included lengthening sales cycle for some of the company's business lines, weakening sales and revenue growth, issues with Kenexa's international sales and its problems with a significant client.

The lawsuit was filed in the United States District Court for the Eastern District of Pennsylvania and is currently under trial. This may have some negative impact on the reputation of the company and may also attract some financial penalty if proved in the court of law.

Kenexa, already well positioned with its Web-based applications that automate human resources activities like recruitment, skills testing, and tracking of employee development, is also trying to grow through joint ventures, cost restructuring and debt reduction. But given the current economic environment, we see minimum opportunity in employment and capital spending, which may impact the company's business. The company also provides a flat Q209 outlook. Therefore, we maintain a Hold rating on the stock until we get further clarity.