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Navigant Rides on Technology Investment Amid Staffing Issues

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Navigant Consulting, Inc. (NCI - Free Report) stock has surged 30.5% over the past six months, significantly outperforming the 10.1% gain of the industry it belongs to. Moreover, healthcare reform and strong energy demand continue to be key growth drivers for the company.

 

 

In the first quarter of 2018, Navigant reported decent results, wherein earnings met the Zacks Consensus Estimate but revenues surpassed the same.

Adjusted earnings per share came in at 30 cents compared with 27 cents in the year-ago quarter.  Total revenues were $264.5 million compared with $257.8 million in the prior-year period. Revenues before reimbursements (RBR) were $243.9 million compared with $236.2 million in the year-ago period. Notably, the metric outpaced the Zacks Consensus Estimate of $234 million.

However, the company’s earnings surprise history has been disappointing. It missed estimates in three of the trailing four quarters, with an average negative surprise of 14.5%. For the second quarter, the consensus estimate has remained unchanged at 32 cents over the past 60 days.

Meaningful Investment in Technology

Navigant is consistently investing in technology infrastructure to augment its technology-based service offerings so that it can efficiently meet the changing demands of its clients. It is developing data analytic tools across multiple groups to meet the increasing demand for technology-enabled solutions that can help clients address most of the market-related challenges.  

Furthermore, the company has invested in development programs that are aimed toward improving sales effectiveness and collaboration across the organization. Navigant’s other focus areas include employee development, talent management and mentoring programs. Going ahead, these initiatives should add to Navigant’s ability to grow its business organically.

Navigant Consulting, Inc. Net Income (TTM)

 

Consistent Segmental Growth

Navigant’s Healthcare and Energy segment have expanded over time via investments in hiring and acquisitions. The demand for data analytics in healthcare across all markets is growing, given the access to new data as a result of the Affordable Care Act and new technologies. Moreover, acquisition of Cymetrix and RevenueMed has expanded Navigant’s business process management service capabilities to hospitals and physician groups. These acquisitions and related hiring complement the company’s traditional consulting services and provide it with more recurring revenue streams.

Also, the company has broadened its service offerings and expanded operations in important markets and geographies. It has grown its benchmarking, data and research services to offer a broad range of market research capabilities. In fact, the acquisition of Ecofys Investments B.V. in 2016 proved conducive to the company. This buyout is helping Navigant enhance its capacities in energy policy, energy systems and markets, urban energy, climate strategies, and sustainability services. The company’s Disputes, Forensics and Legal Technology segment has also strengthened over time backed by its continuous efforts to enhance services and expand global reach. Additionally, the Financial Services Advisory and Compliance segment has grown through senior hiring.

Headwinds

Navigant continues to face challenges on both the domestic and international fronts. This is primarily attributable to the difficulties in managing and staffing foreign operations, relatively limited new assignments, currency fluctuations and regulatory stringencies due to uncertainty in the global economy.

Also, the company relies heavily on a group of senior-level consultants and business development professionals. In fact, Navigant’s success is largely dependent on its ability to successfully recruit and retain its people. Competition for skilled consultants is intense and retention-related issues are a continuous challenge for the company. Further, the consulting industry has low barriers to entry and it’s easier for consultants to start their own businesses. While hiring and retention of personnel are key growth drivers, full-time equivalent levels and related consultant compensation in excess of demand boost additional costs and can negatively impact the company’s margins.

Zacks Rank & Stocks to Consider

Navigant currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Business Services sector are Robert Half International (RHI - Free Report) , Kforce Inc. (KFRC - Free Report) and Korn/Ferry International (KFY - Free Report) . All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While sales for Robert Half and Kforce are projected to rise 9.1% and 5.1%, respectively, for the second quarter of 2018, the same for Korn/Ferry is anticipated to increase 11.9% for the fourth quarter of fiscal 2018.

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