Huron Consulting (NASDAQ:
) is getting lots of commentary following news out late Friday as the co disclosed need to restate financials for 2006-2008 and 1Q09 due to accounting errors, withdrew 2009 EPS guidance and lowered revs guidance by 12%, deals with an SEC investigation and announced the departure of CEO/CFO:
- Baird is downgrading HURN to Underperform with a $15 tgt (prev. $50) on lack of confidence in their estimates as their previous concerns about retention of MDs has increased significantly given the restatement of earnings, potential reputational damage, the SEC inquiry, senior management turnover, disappointing 2Q09 results and lower 2009 top-line guidance indicative of no bonuses being paid in 2009.
Firm's $15 price target represents 5.0x FTM estimated EV/EBITDA including stock comp expense or half the average of the previous six quarters given the significantly negative implications of Friday's announcement. While they believe there is significant franchise value that should be applied to HURN's current personnel, they have no confidence on the level of people that will be retained. Until the firm can gain confidence that attrition will be better than feared and that the reputational damage will be minimal, they can only recommend that investors avoid the stock.
- William Blair downgrades HURN to Market Perform noting Management’s lack of communication with the Street surrounding this news makes it impossible for use to fully understand what has happened with the accounting or with recent business trends. In addition, these announcements and the stock price decline introduce a number of issues that they do not expect to get answers about for a while. Specifically, the news about a significant restatement and SEC investigation could damage the company’s brand (especially given the accounting background of its consultants), could lead to increased consultant turnover (especially given the large amount of stock used as compensation for Huron's consultants), and will result in a number of shareholder lawsuits. As a professional services company with a relatively high amount of debt, it is not implausible to argue that this event causes the company to languish for an extended period of time or eventually unravel.
