Navigant Consulting: Benefitting From Every New Regulation

Price: $13.41

Forward P/E: 13

Earnings Growth: 11%

Projected Sales Growth: 5.6%

Market Cap: $700 million

Why it's Featured: Solid earnings growth; stock up 36% in 4 months.
Danger Zones: Fewer regulations.

Navigant Consulting, Inc., (NYSE: NCI) a specialty consulting firm, provides dispute, investigative, economic, operational, risk management, technology, and financial and regulatory advisory solutions to companies, legal counsel, and governmental agencies facing the challenges of uncertainty, risk, distress, and significant change in the United States, the United Kingdom, and internationally.

The company operates in four segments: Business Consulting Services, Dispute and Investigative Services, Economic Consulting, and International Consulting.  Business Consulting Services provides strategic, operational, financial, regulatory, and technical management consulting services principally to "C" suite executives and corporate management, government entities, and law firms.

Dispute and Investigative Services provides a range of services principally to law firms, corporate general counsels, corporate boards, and government agencies facing the challenges of disputes, litigation, forensic investigation, discovery, and regulatory compliance.

Economic Consulting provides economic and financial analyses of complex legal and business issues principally for law firms, corporations, and governmental agencies. It offers services in various areas, such as antitrust, corporate finance and governance, bankruptcy, intellectual property, investment banking, labor market discrimination and compensation, corporate valuation, and securities litigation.

International Consulting provides a mix of dispute and business consulting services principally to "C" suite and corporate management, governmental entities, and law firms outside North America. The company primarily serves legal, construction, energy, healthcare, and financial services industries. Navigant Consulting, Inc. was founded in 1983 and is headquartered in Chicago, Illinois.  (For more stock ideas, see The Online Investor: www.theonlineinvestor.com)

Here's a stock that improved fourth quarter earnings by 47% to 22 cents share, 16% ahead of analysts' consensus estimate of 19 cents.  Revenues bettered estimates by 8%.  Business is good if you're a consulting firm that focuses on new government regulations.  And that's what Navigant does.

With all the new regs in the financial sector (Graham,Leach,Bliley Act to start with, Dodd-Frank just ahead), banks and other financial services companies are looking for help to avoid making mistakes and paying heavily (in terms of fines) for them.  The fear is real and so are the revenues from it.

Earnings for 2011 finished at 84 cents a share.  Consensus from 8 analysts is for 93 cents this year with $1.06 forecast in 2013.  Expect 21 cents in the first quarter (ends March 31) vs 19 cents in last year's first.  For the second quarter, analysts see 24 cents compared to 21 cents last year in the second.  Revenues should hit $828.47 million this year, 5.6% ahead of last year, then go to $875.63 million in 2013.

Business Consulting Services has been the big contributor lately for better sales and profits, mostly due to credit crisis advice from financial institutions and new healthcare laws.  International Consulting is also gaining traction, showing a 23% increase in bookings in the last quarter.  For all of 2011, sales grew by 12% and profits by 38%.

Managment's been busy with housecleaning, focusing particularly on the balance sheet.  It paid down 30%  of debt in 2011.  The board of directors approved a new stock buy-back program, suggesting that the balance sheet is in good shape (debt is only 20% of capital now).  Along with the stock repurchase program, cash flow could be used for more acquisitions, to go along with several made in the last few years.  Cash flow is strong enough to deploy both programs.

- Essential Numbers:
- Price to sales ratio: .88
- Price to book: 1.32
- Operating margin: 10.05%
- Profit margin: 5.24%
- Return on equity: 8.44%
- Return on assets: 5.65%
- Revenues last 12 months: $784.68 million
- Total cash: $2.97 million
- Cash per share: 6 cents
- Total debt: $132.25 million
- Debt to equity: 25.75%
- Current ratio: 1.41
- Book value per share: $10.05
- Beta: .82
- 52 week change: 35.82%
- Shares outstanding: 52.03 million
- Float: 50.87 million
- Held by insiders: 2.15%
- Held by institutions: 89.2%
- There is no dividend.

One thing to keep in mind with any service company like a consulting firm: its revenues and profits all depend on people so every night all your assets leave the building.  Recruiting and retaining good consultants is a constant challenge.  NCI doesn't seem to have a problem with that.  But it's good to remember when investing in any company where people deliver the services.

- Company Web site: www.navigantconsulting.com

- Ted Allrich
March 7, 2012