Life Filled with Lawyers, and Loving Every Minute
By Michael Brush
June 29, 2005
There’s an old curse that wishes the following fate on a nemesis: “May your
life be filled with lawyers.”
At Navigant Consulting (NCI),
however, the more lawyers the better. The lives of consultants at this
Chicago-based company are always filled with attorneys because Navigant
makes money doing things like digging up the facts for high-powered legal
teams, handling their depositions, or providing expert testimony.
advertisement
At any given moment, Navigant might be involved in cases ranging from
high-profile battles over Boston’s “Big Dig” highway project now dubbed the
“Big Leak,” to disputes about the construction of a petrochemical plant in
China, or forensic accounting work in some case of financial hi-jinx.
Navigant also helps companies deal with regulation and government contracts.
Finally, it gets about a third of its revenue from business consulting.
Like many consulting companies in these fields, Navigant got a huge boost
over the past two years from the Sarbanes-Oxley act. That law made the big
four accounting firms in the U.S. stop doing consulting work for their audit
clients – leaving many of those clients scrambling for new consultants.
Navigant helped picked up the slack.
Growth slipping
Now, however, the growth from that wave of business is slipping. That’s one
reason Navigant warned in early June that annual organic revenue gains would
fall to 12%-15%. Growth investors hoping for a repeat of the recent 25%
annual growth were jolted and fled the stock, smacking it down to $16 from
$24 in one single day in early June.
Since then, it has drifted up to $18 -- but not before insiders snapped up
$1.1 million for prices between $16.56 and $17, according to Thomson
Financial. That’s not much below current levels. The buys included a
$841,936 purchase by chief executive William Goodyear – a guy with a front
row seat on business trends.
With projected growth getting notched down by such a large amount, why would
insiders be buying?
After all, activist New York attorney general Eliot Spitzer is presumably
moving on to seek political office. The new chairman of the Securities and
Exchange Commission reportedly has a pro-business slant. And the Supreme
Court recently overturned the conviction of Arthur Anderson big wigs, making
it less likely we’ll see more high profile cases like that.
All this seems ominous. But take another look and you see that insiders have
two legitimate reasons for scooping up shares. That means you do, too.
Two reasons to buy
First, while organic revenue growth will fall to 12%-15%, that’s really not
so bad. And it may not slip much more than that. “Unfortunately, litigation
is a growth business,” says Navigant finance chief Ben Perks. “There is
still a very healthy environment for Navigant.” Analysts project medium-term
annual earnings growth to come in at 15% to 20%.
Next, down here Navigant looks cheap compared to the rest of the group.
Competitors CRA International (CRAI),
FTI Consulting (FCN),
Huron Consulting Group (HURN)
and LECG (XPRT)
trade for an average forward price earnings ratio of 22.3. Navigant goes for
20% less at 18.6 times forward earnings. The four competitors have a price
earnings to growth rate (PEG) of 1.2. Navigant’s PEG is 30% less at .93.
The bottom line: For better or worse, the litigation craze and
lawyers probably aren’t going away any time soon – so there’s an underlying
macro-trend that will help Navigant. The shares still need to recover from
the shock of a slap in the face that caused an overnight 25% decline. So it
probably won’t be straight up from here. But given the solid underlying
trends and a relatively cheap valuation, I’d still be a buyer right here.
Cautious investors might pick a pricey competitor or two and go short, while
buying an equal amount of Navigant stock for a “pairs trade” that hedges the
risk of further weakness in the whole group.
|
|
|
|
|
|
|
|
| Navigant: A
summer sale on consultants |
|
|
|
|
|
|
|
Long-term |
|
|
|
|
|
Recent |
2005 |
Earnings |
Forward |
|
|
|
|
Price |
Earnings |
Growth % |
p/e |
PEG ratio* |
|
|
| Huron
Consulting |
$23.9 |
$0.94 |
19.5 |
25.43 |
1.30 |
|
|
| CRA International |
54 |
2.12 |
20.5 |
25.47 |
1.24 |
|
|
| FTI
Consulting |
20.8 |
1.25 |
13.83 |
16.64 |
1.20 |
|
|
| LECG |
20.5 |
0.94 |
20.75 |
21.81 |
1.05 |
|
|
| Navigant |
17.9 |
0.96 |
20.14 |
18.65 |
0.93 |
|
|
| average |
|
|
|
22.30 |
1.20 |
|
|
| *forward p/e
divided by long-term growth rate |
|
|
|
|
|
|
|
|
|
|
|
|
Disclaimer
At the time of publication, Michael Brush did not own or control shares in
any of the companies listed in this column. Mr. Brush is an independent
columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About
Insiders Corner:
http://www.investorideas.com/insiderscorner/. InvestorIdeas.com
Disclaimer:
www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not
affiliated or compensated by the companies mentioned in this article.
|
|
