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CRA International Rides on Diversification, Talent Costs Hurt

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CRA International, Inc. stock has rallied 20.5%, significantly outperforming the industry’s gain of 9.5% on a year-to-date basis.

 

We believe that strong and diversified business across multiple industries and geographies led to this impressive price performance.

Notably, CRA International reported strong first-quarter 2018 results. Adjusted earnings per share came in at 72 cents compared with 33 cents in the year-ago quarter. The bottom line comfortably surpassed the Zacks Consensus Estimate by 22 cents. Total revenues of $99.5 million beat the Zacks Consensus Estimate of $95.7 million and increased 12.8% year over year.

What’s Driving CRA International?

CRA International’s global presence provides it the opportunity to work with world’s leading professionals and helps it enhance its knowledge base and areas of functional expertise. The company has a vast global network of coordinated offices spread across North America and Europe. Its international operations are contributing significantly to top-line growth. In fiscal 2017, 2016 and 2015, CRA International earned 20%, 22% and 20% of its total revenues, respectively, from its international business.

CRA International’s team helps it maintain its reputation for delivering high-quality consulting services. Almost three fourths of the company’s senior consultants are highly educated, having doctorate or other advanced degrees and are recognized experts in their respective fields. As of Dec 30, 2017, its team comprised 631 consultants, including 476 senior staff and 155 junior staff.  Additionally, the company works with a select group of non-employee experts belonging to top educational institutes to better serve clients.

A diversified business model is a major tailwind. Presence in multiple industries helps CRA International meet varying client needs and offer innovative services. Further, the company gets to know about business strategies adopted across the world. This multidisciplinary set up enables the company bring experts from all fields under one platform. The diversification in business also reduces CRA International’s dependence on any specific market, industry or geographic area. It also increases the company’s ability to adapt to any changing conditions.

The key areas of focus include generating balanced and profitable growth across the organization through optimum organic and inorganic means; strengthening client relationships within two lines of business and simplifying internal processes. These activities augur well for the long-term growth of the company.

We are also impressed with CRA International’s consistent record of returning value to shareholders in the form of dividend and share repurchases. During first-quarter 2018, CRA International returned $9.8 million to its shareholders, which includes $1.5 million of dividend payments and $8.3 million through share repurchases. In fiscal 2017, CRA International returned $24.6 million to its shareholders, which included $5.1 million of dividend payments and $19.5 million of share repurchases. In fiscal 2016, the company returned $20.3 million to its shareholders, inclusive of $1.2 million of dividend payments and $19.1 million through share buybacks. Such moves indicate the company’s commitment to create value for shareholders and underline its confidence in its business.

Risks

Higher talent costs due to a competitive talent market coupled and Trump’s stringent policies on immigration are hurting consulting services stocks like CRA International. The industry is labor intensive and heavily dependent on foreign talent. Moreover, while advancement in automation and AI offer massive opportunity to the industry, these technologies enable clients to comprehend and integrate new methods to improve performance, thereby creating uncertainty for consulting services firms.

Zacks Rank & Stocks to Consider

Currently, CRA International is a Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A few better-ranked stocks in the broader Business Services sector include Waste Connections, Inc. (WCN - Free Report) , Advanced Disposal Services, Inc. (ADSW - Free Report) and Stericycle, Inc (SRCL - Free Report) . All the stocks carry a Zacks Rank #2 (Buy).

The long-term expected EPS (three to five years) growth rate for Waste Connections, Advanced Disposal Services and Stericycle is 13.3%, 15.5% and 9.6%, respectively.

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