CRA International: A Wait & Watch Stock

We maintain our Hold rating on shares of CRA International (CRAI). Despite solid second-quarter results, we remain cautious in light of the magnitude of the first-quarter shortfall, as well as the difficulties in executing its business plan in recent quarters. The seemingly quick turnaround in the second quarter likely went a long way towards moving the company in the right direction.

The company’’s growth via acquisition has led to the expansion of new geographic and the introduction of new practice areas. However, this growth has also created additional challenges, and the company has recently struggled with its attempts to maximize the efficiency of its workforce.

CRAI is in the process of undertaking restructuring activities to better align its workforce to reflect the current operating environment. These efforts paid dividends that were reflected in the second-quarter results, and we could become more positive on the shares should this trend continue. We maintain our Hold rating at this time.

Using a P/E ratio, the shares of CRA International are currently trading at a discount to the peer group average. We expect that the shares will continue to trade at a discount to the peer group, until the company is able to deliver signs that the improvement in utilization rates is actually sustainable. Our price target of $38.50 reflects a multiple of 15.5x our 2008 earnings estimate.

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