Zacks.com
CRA International Now a Sell
Monday September 29, 3:12 pm ET
By Sean P. Smith


We are downgrading our rating on business and legal consultancy company CRA International (NasdaqGS: CRAI - News) from Hold to Sell, following the release of third-quarter financial results that fell well short of Street expectations. The shortfall marks the second such disappointment in the last three quarters. As such, we anticipate that investors will demand evidence that the management has properly addressed the Boston, Massachusetts-based company's operational problems before affording a higher multiple to CRAI shares.

The shares declined 27% following the release of the disappointing third-quarter results. However, we believe that the stock may be subject to further downside risk, and we do not expect material short-term price appreciation in light of the operational challenges facing the company. While it is true that CRAI may ultimately reap some rewards from the current upheaval in the financial markets, we do not expect a significant positive impact in the near-term.

The stock is currently trading at a discount to the peer group average on a price/earnings basis. Our price target of $25 per share reflects a multiple of 15x our 2008 earnings-per-share estimate. While this multiple represents a discount to the peer group average, we feel this discount is well warranted given CRA International's poor operating performance in 2008