Navigant Focuses On Restructuring Initiatives, Risks Remain

On Oct 10, we issued an updated research report on management services provider, Navigant Consulting Inc. (NYSE:NCI) .

Growth Drivers

Opportunities associated with healthcare reform continue to drive demand for Navigant as the industry seeks to improve profitability and address increasing regulatory pressures for compliance. Demand for data analytics in healthcare across all markets is also growing as the Affordable Care Act and new technologies have given access to new data. The company is presently developing data analytic tools across multiple groups to meet the growing demand for technology-enabled solutions that can help clients address many market challenges.

Management is also taking steps to restructure the business in order to better align capacity with demand. Utilizing its strong cash flow generation capacity, the company continues to return capital to its shareholders while investing heavily in technology, new capabilities and client channels. At the same time, Navigant is focusing on corporate development efforts to build a robust pipeline of investment opportunities, which is in line with its growth strategy.

Also, the company aims to expand through solid inorganic strategies. Navigant acquired Cymetrix Corporation, a revenue cycle management firm. The firm is expected to add significant depth to Navigant’s subsidiary Alleviant, LLC, which presently provides physician revenue cycle outsourcing services. The acquisition of RevenueMed will further strengthen its position as the leading provider of end-to-end revenue cycle management services and expand its platform to include global offshore capabilities 24 hours a day.

Headwinds

Navigant has underperformed the industry with an average year-to-date decline of 35.3% as against a gain of 15.4% for the latter. The company operates in a highly labor-intensive sector. Ideally, the sector should employ a skilled workforce to keep up with the evolving business environment. However, as skilled workers are always in high demand, there remains a possibility of high attrition rate within the sector.

On the other hand, training of unskilled workers increases operational costs, thereby affecting margins. The business service sector is highly fragmented with no single service provider possessing dominant market share to rule the industry. Hence, Navigant faces stiff competition from a number of peers while acquiring and maintaining clients for its different business segments, which could further reduce its profitability.

Zacks Rank & Key Picks

Nevertheless, we remain impressed with the inherent growth potential of this Zacks Rank #3 (Hold) stock. Better-ranked stocks in the industry include Accenture plc (NYSE:ACN) , Stantec Inc. (TO:STN) and S&P Global Inc. (NYSE:SPGI) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Accenture has a long-term earnings growth expectation of 10.3%. It topped earnings estimates in each of the trailing four quarters with an average positive surprise of 2.6%.

Stantec is currently trading at a forward P/E of 18x.

S&P Global has a long-term earnings growth expectation of 12.5%. It topped earnings estimates in each of the trailing four quarters with an average positive surprise of 9.5%.

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