We have downgraded our rating on shares of CRA International (CRAI) to Hold. We have substantially reduced our revenue and earnings estimates based on the expectation of lower utilization rates. In light of the magnitude of the first-quarter shortfall, as well as the difficulties in executing its business plan in recent quarters, we believe that the company's management team has lost some credibility with investors.
As a result, we expect that the shares will be afforded a lower earnings multiple than in the past until the company is able to deliver signs that utilization rates have improved and that any improvement is actually sustainable. The shares declined nearly 40% following the earnings pre-announcement, in a move that we consider to be justified given the change in outlook.
The company will report full earnings results on March 20, and management's comments explaining the first-quarter shortfall, as well as their revised outlook for the full year, will likely have a large impact on the potential direction in share price. In any event, however, we anticipate that the market will likely need to see the company actually deliver improved results before applying a higher multiple to the company's earnings.
Therefore, we have lowered our rating on the shares to Hold. Our new price target of $24.00 reflects a multiple of 11.5x our revised 2008 earnings estimate. We note that our outlook is subject to change following the release of full first-quarter results.
Read the full analyst report on CRAI.
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