Earnings Preview: CRA International

CRA International Inc. (CRAI), a consulting firm that provides legal, regulatory, business consulting and other expert services through its specialized consultants across the globe, is slated to release its third quarter 2010 results on Thursday, September 30. The current Zacks Consensus Estimate for the quarter is 30 cents per share, representing an annualized decline of 3.2%.

With respect to earnings surprises over the trailing four quarters, CRA International has oscillated from approximately negative 85.2% to positive 26.7%. The average earnings surprise was a negative 19.9%. This implies that the company has fallen short of the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Second Quarter Recap

CRA International reported second quarter earnings of 19 cents per share, beating the Zacks Consensus Estimate by 4 cents, but substantially lower than 28 cents per share reported in the year-ago quarter. Earnings were aided by better-than-expected revenues, partially offset by slightly increased overall cost structure.

During the second quarter 2010, CRA International’s total revenue, excluding NeuCo revenues, jumped 15% year over year to $66.3 million due to an increase in demand for both the litigation and management consulting businesses. The utilization rate also shot up 500 basis points to 65%, showing prominent signs of a recovery in consumer spending.

Estimates Revisions Trend

Estimates have not budged in the last 30 days, implying that the analysts do not see any meaningful catalyst for the time being. The current Zacks Consensus Estimate is 87 cents per share for 2010 (reflecting a year-over-year decline of 25.9%) and $1.29 per share for 2011 (reflecting a year-over-year growth of 48.5%).

Agreement of Estimate Revisions

There has been no movement in the analysts’ estimates for CRA International’s earnings over the last 30 days, given the absence of any meaningful catalyst to drive the estimates.

Magnitude of Estimate Revisions

There has been no change in the last 60 days in the earnings estimates of 30 cents, 87 cents and $1.29 for the third quarter, fiscal 2010 and fiscal 2011, respectively, as reflected through the magnitude of the Consensus Estimate trend. Therefore, the analysts expect the company to report in line.

Our Take

Currently, we expect CRA International to post third quarter results in line with estimates. We anticipate a sustained improvement in utilization and successful restructuring activities will be the key catalysts for the company’s growth. The company should also benefit from the slow but improved growth from litigation and management consulting services.

However, we still remain cautious on the stock as positive impacts will likely be marred by clients hesitant to spend aggressively on major consulting projects. Although demand remains solid within the majority of the company’s business practices, it has been slow to improve profitability.

Hence, the company has a Zacks #3 Rank (short-term Hold recommendation) on the shares. We also reiterate our long-term Neutral rating.

CRA INTL INC (CRAI): Free Stock Analysis Report

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