Thursday, May 9, 2019

A Current AIM Small Cap Equity Holding: Navigant Consulting Inc. (NCI, $22.95): “Hot Start to 2019” By: Sean Halverson, AIM Student at Marquette University

 Navigant Consulting Inc. (NCI, $22.95): “Hot Start to 2019”
By: Sean Halverson, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Navigant Consulting Inc. (NYSE:NCI) is a specialized, global professional services company that helps clients take control of their future. The company focuses on markets and clients that are facing transformational change and significant regulatory or legal pressures.

• After the release of the Q1 earnings, the company saw strong revenue and EPS growth due to their HSS joint venture.

• Shareholders have seen great results as the company returned over $55 million through share repurchases and dividends.

• Management commented that they are furthering their sustainability efforts by setting science-based emission reduction targets.

• The company is committing 100% renewable energy for their offices internationally and it will be important to monitor the results of this commitment.

Key points:

Navigant Consulting Inc. has seen great results from their HSS joint venture that is contributing to their significant growth within the first quarter of 2019. The venture is helping NCI to collect cash and revenue from their clients on a more timely and efficient basis. This is also creating value for the Baptist Health South Florida health system because the services provided to these clients are enabling a leaner and smoother operating system. The developments within HSS are continuing to prove their reliability and performance within the Healthcare industry.

Since the divesture of their slow growing Disputes, Forensics, and Legal Technology (DFLT) segment, the company is seeing that this decision is paying off. The pursuit of expanding their expertise into healthcare and energy efforts is aligning well with the business model that NCI is formulating. Julie Howard, the CEO of Navigant, is evaluating M&A opportunities that provide the company with the ability to accelerate growth and deepen technological capabilities. This is allowing the company to continue to execute capital return to shareholders and is a goal that management will be pushing for throughout 2019.

In FY2019, there are three building areas that Navigant is focused on to develop the company and create more value. Data tech digital consulting, data management and analytics, and automation process skills are the main focus. They will position the company to feed off the demand that is occurring within the Big Data Analytics environment. Management is broadening the company’s ability to provide a stronger skill set in these areas to help existing client relationships, but also to be more competitive in a newer business environment. 

As NCI continues to take on zero debt, the company has still proven to have the possibility of being able to give returns back to shareholders. With the $55 million in dividends and share repurchases in Q1 of 2019, it is reaffirming to shareholders the strength on Navigant’s current position within the market.

What has the stock done lately?

Over the past month, NCI has seen a price increase of 17.5%. This positive start to the year is expected to grow through the year and EPS expectations for the quarter were beat by $0.09. Revenue was also stronger than expected with it being $18.02M up from the previous estimate. 

Past Year Performance: 

With the release of their yearly results for 2018, the stock took a massive hit due to it missing EPS by $-0.03 on the year. This was mostly due to the tax gain related to the Tax Cuts and Jobs Act that was recognized in 2017. 

Source: FactSet

My Takeaway:

With the success that HSS is bringing Navigant, the company has a positive outlook looking into the near future. However, the only concern is this renewable energy initiative being implemented by the CEO. It is extremely expensive to install renewable energy resources and in some places, the utility companies are not able to support the technology. There are individuals who pay the large fee to have it installed and then don’t receive the benefits from them because the utility companies will not allow them to be used. If Navigant continues to find success with its HSS joint venture and can smoothly transition to the renewable energy, they will have very strong results for the remainder of 2019.

Source: FactSet

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