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HURN Dives Hard - Short-term Buy Opportunity

|Includes: Huron Consulting Group Inc. (HURN)

Here I am on a Friday afternoon in the summer, month-end no less, and a company I peripherally follow drops a bomb after the market closes.  Huron Consulting, which went  public in 2004 at 15.50, first traded at 18.50 and then closed at 18.99 before running up over the next 3 years to as high as 84 in late 2007 before closing today at 45 has totally round-tripped, trading as low as 18.55 in the after-hours session (with an hour to go as I type).

Long-story short, the company rooted out an internal fraud and will have to take a non-cash charge that reduces reported earnings over the past several years and even this past quarter.  The CEO resigned, the CFO too (though neither is leaving immediately), while the CAO, who is most likely the guilty party, exited immediately.  The company has already named a CEO and CFO and a new Chairman.  Most importantly, Adjusted EBITDA, which is the metric analysts use, is unchanged.  Equity, Assets and Liabilities are all unchanged as is cash. 

You can read the 8-k to get the details, which also include a softening of revenue expectations for the rest of the year and the implementation of a cost-reduction program.  Essentially, the senior manager who committed the fraud was taking kickbacks in relation to earn-out payments.

My take is that the stock should be at 28 not 18.  This is a fine company that is adequately capitalized and unlikely to suffer in the long-term despite this embarassing incident.  I suppose that anytime someone in charge of the books does something wrong it raises the question of what else, so clearly I could be underestimating the potential for more downside.  Still, I bought some between 18.85 and 20 and hope to sell it on Monday when saner minds prevail.

Disclosure:  Long HURN with the intention to sell short-term (note that this is not a published article and doesn't comply with the rules that govern me for those contributions).