(By Balaseshan) Deutsche Bank analyst Paul Ginocchio upgraded rating on shares of Huron Consulting Group (NASDAQ:HURN) to "Buy" from "Hold" on expectations of a strong second half. The brokerage maintained its $36 price target on shares of the consulting services provider.
Ginocchio belives it's now widely recognized that 2Q revenue trends will again be soft due to contingent fees. He thinks a 2012 guidance cut is nearly priced into the shares, but he believes it's a better than even chance that Huron will maintain its 2012 guidance, partially due to its lack of cyclicality, which he thinks would take the shares higher.
The analyst has raised HURN's EPS nominally for the recent acquisition of AdamsGrayson. With HURN currently trading on 10.5 times 2012 price to free cash flow, he thinks it can trade back towards 12 times as his strong second half of 2012 scenario plays out.
The analyst said HURN is more insulated from the economic cycle due to its 67% revenue exposure to Healthcare & Higher Education. The recent affirmation of Healthcare Reform could spur activity in the near term as the wait and see period is now over.
HURN's most cyclical business is e-discovery (about 23% of revenues), but Ginocchio feels good about trends there near-term due to HURN's recent acquisition and its low cost strategy, which should resonate in this environment. HURN's bankruptcy practice (5% of revenues) may also see a pickup in the coming quarters.
On June 25, Huron acquired Adams Grayson, a 200-seat document review center in Washington DC. The analyst believes it adds about $20 million to revenue and has similar margins to Huron's legal division (25% pre corporate expenses).
Ginocchio has now incorporated this acquisition into his model, which adds a penny to his 2012 EPS, now $2.27 (excluding amortization), and two cents to 2013 EPS, now $2.69. Due to Huron's focus on low cost document review, he believes it is slightly more immune from the slowing economy than higher cost solutions.
HURN is trading up 6.23% at $33.25 on Tuesday.