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CRA International: Now What?

Mar. 05, 2018 3:44 PM ETCRA International, Inc. (CRAI)
Quinn Foley profile picture
Quinn Foley


  • CRAI traded at a steep discount to peers for years despite any real firm-specific issues.
  • Two consecutive years of strong performance has seen the valuation gap close.
  • The stock is up almost 200% since the end of 2015, and while CRA is a good business, it shouldn't outperform the peer group much longer.

CRA International (NASDAQ:CRAI), or "Charles River Associates", is a global consulting firm that offers economic, financial and strategic expertise to law firms, corporations, accounting firms and governments around the world. The company has been around for more than 50 years and provides expertise in a wide range of areas, including antitrust, intellectual property, cybercrime, damages and valuation, forensic accounting, international arbitration, labor and employment, life sciences, M&A, regulatory economics and compliance and transfer pricing.

CRA went public in 1998 and for much of the last decade its stock flew under the radar. In the years following the financial crisis the company lost 75% of its market value and revenues fell by a third. Some of this was due to restructuring, but a lot of the weakness was spread throughout the sector as business activity around the world cooled off for a bit. Things gradually started to turn around again and utilization rates normalized, but the stock continued to trade at a steep discount to consulting peers despite a lack of firm-specific issues.

Figure 1: Stock Graph

Source: Morningstar

This all started to change in 2016 thanks to some strong results and prudent capital allocation decisions. Revenues increased 20% on a two-year stack, reflecting a mix of organic growth and acquisitions and the company aggressively bought back stock. Peers, on average, grew sales less than 10% during this period and purchased far fewer shares: total shares outstanding decreased 5% for the peer group compared to 9% for CRA.

The stock is now up 173% since the beginning of 2016 and the valuation gap to peers has closed. CRA returned almost 20% annually over the past three years, compared to an average of 6.1% for the peer group and the stock trades at its highest level in more than 10 years. We

This article was written by

Quinn Foley profile picture
equity analyst / macro. passed cfa level ii exam

Analyst’s Disclosure: I/we 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.

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