Strong Demand In Antitrust & Competition Economics Will Support Future Performance

Key Takeaways

• Legal and regulatory services are expected to drive revenue growth, supported by strong demand in Antitrust & Competition Economics and Intellectual Property.
  
• Strategic capital allocation, including share repurchases and dividends, reflects confidence in growth and aims to enhance earnings per share.
  
• High competition for talent and macroeconomic uncertainties could negatively affect CRA's profitability through increased costs and fluctuating demand.

Catalysts

Provides economic, financial, and management consulting services worldwide.

• CRA's legal and regulatory services are anticipated to continue leading revenue growth, supported by strong performance in high-demand areas like Antitrust & Competition Economics and Intellectual Property, driving positive revenue impact.
  
• The company expects to benefit from increased utilization rates, especially within its legal and regulatory practices, which operate at higher utilization levels compared to management consulting, potentially improving net margins.
  
• Strategic capital allocation, including significant share repurchases and dividend payments, reflects confidence in long-term growth prospects and is aimed at enhancing earnings per share.
  
• Continued pipeline growth and strong project lead flow suggest sustained revenue expansion, supported by broad-based market demand across practices like Energy and Life Sciences.
  
• Anticipated reduced capital expenditures in fiscal 2025, focusing on efficient resource allocation, could contribute to stable or improved EBITDA margins through cost management.

CRA International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CRA International's revenue will grow by 4.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.8% today to 8.2% in 3 years time.
• Analysts expect earnings to reach $64.4 million (and earnings per share of $9.51) by about March 2028, up from $46.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.7x on those 2028 earnings, up from 25.8x today. This future PE is greater than the current PE for the US Professional Services industry at 21.7x.
• Analysts expect the number of shares outstanding to decline by 1.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.71%, as per the Simply Wall St company report.

CRA International Future Earnings Per Share Growth

Risks

• The guidance provided is based on forward-looking statements that are inherently uncertain, which could lead to inaccuracies in projected revenue and non-GAAP EBITDA margin due to changes in economic conditions. This uncertainty directly impacts revenue and earnings.
  
• CRA has observed a slowdown in M&A transactions, which if not a temporary lull, could affect the growth rates of the Antitrust & Competition Economics practice, thereby impacting revenue and profitability.
  
• The company noted high utilization due to the growing legal and regulatory segment. However, a shift in demand or underperformance in management consulting services could lower utilization rates, affecting net margins and earnings.
  
• There is significant competition for talent, particularly in the legal and regulatory services sector, which could lead to increased compensation costs, thereby impacting net margins and overall profitability.
  
• Potential global macroeconomic, business, and political uncertainties could adversely affect CRA's operations and the demand for services, leading to unexpected dips in revenue and net margins.

Valuation

• The analysts have a consensus price target of $235.5 for CRA International based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $786.6 million, earnings will come to $64.4 million, and it would be trading on a PE ratio of 26.7x, assuming you use a discount rate of 6.7%.
• Given the current share price of $177.0, the analyst price target of $235.5 is 24.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.