Navigant Upped to Outperform

We recently upgraded our rating on Navigant Consulting Inc. (NCI - Analyst Report) from Neutral to Outperform. The upgradation was based on a host of factors including strong quarterly earnings, successful inorganic growth, growing demand in the construction dispute practice and increased net revenue per consultant.

Navigant Consulting reported second quarter 2011 adjusted earnings per share of 21 cents, exceeding the Zacks Consensus Estimate of 18 cents per share. The company’s net revenue also came ahead of the Zacks Consensus Estimate.

The company registered year-over-year and sequential growth across all its four segments. The construction dispute practice witnessed high demand and the company’s initiatives of re-aligning the practice in late last year and earlier in this year also contributed significantly to the segment improvement. Credit crisis work continues to drive sizable activity in the segment.

Going forward, management identifies disputes, economics, healthcare and energy as key areas for long-term growth and subsequently aims to sharpen its investment focus within these practices. To seize the opportunities associated with healthcare reform, Navigant management recently appointed eight senior consulting professionals in its Healthcare practice.

Navigant derives its revenues primarily from its consultant utilization rate (the amount of time billed in relation to amount of time worked). After experiencing a deteriorating trend over the last few years due to global economic turmoil, the company reported solid sequential growth in net revenue per consultant over three consecutive quarters. Net revenue per consultant was nearly at a record high.

Navigant is on an acquisition spree since 2005 to develop its expertise across all of its businesses. Navigant’s most recent acquisition of Ignited Discovery, a provider of e-Discovery services, is expected to strengthen the process of data collection as well as processing and hosting capabilities for clients. Management expects the segment to ramp up rapidly going forward.

Agreement - Estimate Revisions

Based on the above fundamentals, 3 out of 7 analysts increased their estimates over the last 30 days for fiscal 2011, while one moved in the opposite direction.

Magnitude - Consensus Estimate Trend

During the last 30 days, estimate nudged up by a penny for fiscal 2011. The current Zacks Consensus Estimate is 77 cents for 2011, reflecting a year-over-year growth of 26.93%.

Navigant currently retains a Zacks #1 Rank, which translates into a short-term Strong Buy rating. We have recently upgraded our rating on one of Navigant’s peers CRA International Inc. (CRAI - Analyst Report) to Outperform based on the optimistic outlook for the second half of 2011.

Read the full analyst report on NCI

Read the full analyst report on CRAI