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Why Is Navigant Consulting (NCI) Down 12.2% Since the Last Earnings Report?

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About a month has gone by since the last earnings report for Navigant Consulting, Inc. (NCI - Free Report) . Shares have lost about 12.2% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Navigant Misses on Q2 Earnings, Lowers Guidance

Navigant reported lackluster second-quarter 2017 results with adjusted earnings per share of $0.24 compared with $0.33 in the prior-year quarter. Adjusted earnings missed the Zacks Consensus Estimate by $0.09. Adjusted net income in the reported quarter declined to $11.5 million from $16.1 million in the year-ago quarter owing to lower-than-expected revenues and maintenance of resources in expectation of a superior demand environment in the second half of the year.

GAAP earnings for the reported quarter were $8.8 million or $0.18 per share compared with $14.8 million or $0.30 per share in the year-earlier quarter.  

Total revenues for the quarter were $256.8 million compared with $261.7 million in the prior-year period. Revenues before reimbursements (RBR) decreased 1.4% year over year to approximately $235.2 million and missed the Zacks Consensus Estimate of $248.3 million. Adjusted EBITDA was $29.2 million, down 21% from $37.2 million for the same period in 2016 largely due to high operating expenses.

Segment Performance

RBR for the Healthcare segment, which turned out to be one of the strongest performers this quarter, increased 4.7% year over year to $94.1 million. The improvement was driven by strong demand for large, strategy-led transformation projects and demand for commercialization solutions from life sciences companies.

The Energy segment’s RBR improved 8.4% year over year to $31.7 million in the reported quarter. The growth was driven by contributions from the acquisition of Ecofys. Operating profit for the segment increased 1.4% year over year to $8.5 million.

The Disputes, Forensics & Legal Technology (earlier known as Disputes, Investigations & Economics) segment’s RBR decreased 4.6% year over year to $75.7 million. The decrease in RBR was primarily attributable to weakness in commercial litigation opportunities and postponement of commencement dates for certain engagements in the segment’s legal technology solutions business.

The Financial, Risk & Compliance Advisory segment’s RBR declined 15.8% year over year to $33.7 million in the quarter. Operating profit for the segment was down 29.7% year over year, as resources and capabilities were maintained in expectation of improving demand.

Balance Sheet and Cash Flow

As of Jun 30, 2017, Navigant had cash and cash equivalents of about $6.6 million. At quarter end, bank debt was $184.8 million, compared with $189.8 million in the year-ago period. Leverage (bank debt divided by trailing twelve-month adjusted EBITDA) was 1.37 as of Jun 30, 2017, compared with 1.46 as of Jun 30, 2016.

For the quarter, net cash provided by operating activities was $21.3 million, compared with $34.2 million in the year-ago quarter, due to decrease in earnings. Free cash flow decreased to $13.5 million for second-quarter 2017 from $24.4 million in the prior-year quarter, primarily driven by increase in capital investment spending. Navigant repurchased 436,122 shares for approximately $9 million at an average cost of $20.62 per share.

Guidance Down

Full year 2017, the company currently expects RBR in the range $955–$980 million, down from earlier expectation of $975–$1,010 million. Total revenues are expected to be in the range of $1.04–$1.07 billion (down from $1.07 million to $1.11 billion earlier). Adjusted EBITDA is expected to be in the range of $135–$145 million (from earlier expectation of $145–$156 million), while adjusted EPS is expected to be in the range of $1.19–$1.29.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.

VGM Scores

Currently, the stock has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #5 (Strong Sell). We are expecting a below average return from the stock in the next few months.




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