The Hackett Group (NASDAQ: HCKT) recently declared that it would start paying out dividends, as a way of sharing some of its rich cash flow with its shareholders as well as to attract new investors. The first dividends were $0.10 per share and were paid out to shareholders in December 2012. However, the company cautioned that the new program does not guarantee that dividends would be regularly declared or paid. If this becomes the case and there is a year in which Hackett does not declare a dividend, is there enough reason for you to keep it in your portfolio?
The Hackett Group Fundamentals
The Hackett Group is a business consulting firm that specializes in helping businesses become more competitive through advice on best practices, business benchmarking and transformation services including advice on globalization strategies and strategy and operations as well as management of working capital. Apart from its U.S. corporate headquarters in Miami, Florida, Hackett also maintains overseas offices in territories such as London, Paris, Sydney and Hyderabad.
Simply looking at the company's financial data for the five-year period (2008 to 2012) will reveal that the company has consistently increased revenues from 2009 onwards. Revenues have grown an average of 4 percent during the period, from $142.7 million in 2009 to $234.1 million in 2012. Meanwhile, net income has increased over three years from 2010 to 2012, after recording a loss in 2009, with average growth at 5.8 percent. Diluted net income per share also grew from $0.34 in 2010, to $0.50 in 2012. Its cash and cash equivalents, however, fell to $16.7 million in 2012 after recording consistent growth in the three previous years.
In its earnings report for the first quarter of 2013, total revenue slightly increased to $54.3 million from $54.1 million in the same period last year, while net income was at nearly two million. This brought net income per common share to $0.06. Cash and cash equivalents fell to $11.3 million during the quarter from nearly $17 last year as the company paid some $4.5 million of its long-term debt, leaving a balance of $20.5 million at the end of the quarter. This brought total liabilities of the company to $46.8 million from $59.2 million in the previous quarter.
Meanwhile, the company also authorized an increase in the stock repurchase program of $5 million, on top of the up to $55 million that had earlier been announced. The program is intended to repurchase some 27% of outstanding common shares at the higher end of the price range from $4.25 to $5. The repurchases were to be funded by existing cash balances as well as a new credit facility worth $50 billion.
According to guidance for the second quarter of 2013, total revenues were expected to be within the $54 million to $56 million range, while diluted earnings per share would be at $0.10 to $0.12. These estimates were based on anticipated revenues from the U.S. being up by 5% and overseas revenues down by around 20 percent. Income from Europe, in particular, was expected to be lower as several clients deferred or reduced already approved initiatives.
For the second half of the year, the Hackett Group is refining and testing its Hackett Performance Exchange, a cloud-based solution that allow the company to more closely interface with its clients. The Exchange identifies process improvement opportunities that businesses can use to make their operations more efficient. Data on world-class performance levels is automatically collected through Oracle or SAP systems and then compared with the current process metrics used by the client to identify process improvement opportunities. If this offering is successful, it could lead to a valuable new revenue stream for the company and enhance its profitability further.
Meanwhile, Hackett stock continued to be popular among hedge funds, a promising sign. Of 87 funds holding HCKT positions, 38 added to their existing holdings while 13 opened new positions. Only eight funds closed out their position while 21 reduced their holdings. Overall, however, aggregate HCKT shares held by the funds increased by 0.89 percent.
The Bottom Line
There are many stocks out there that are not as well known, but which are solidly profitable and will greatly enhance your stock portfolio. The Hackett Group stock is one of these, since the company that issues it is low key but posts consistent revenue growth. Its products and services may not be as flashy as iPhones or video streaming, but there is clearly a demand for them; and in its own way, Hackett dominates its market niche. Even if it ultimately proves not to consistently declare dividends annually, its share prices would likely still demonstrate regular growth. And the stock has a beta of 0.95, meaning it will move in tandem with the markets and experience little volatility, making it a safe bet for investors with medium risk tolerance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.