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Resources Connection Inc. Message Board

  • mb0285 mb0285 Aug 16, 2001 12:41 PM Flag

    Possible Conflict of Interest

    I would like to know if any of the two firms that came out with those ratings today were involved in the secondary offering for RECN. Some times companies will hire a firm for a secondary offering or IPO if the firm promises to issue a positive research report. It is also possible that these firms could have purchased the shares from RECN insiders in the secondary and are trying to prop up the stock so they can sell their shares in an orderly manner. It is good to see (based on the stocks reaction today) that investors don't put as much faith into these reports anymore.

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    • Excellent points.
      I have been with RECN for over three years.
      I was one of the first few people placed by them in the Minneapolis market. Although I did have an eight week downtime my first year, I have also had two assignments, (both with the same client)that lasted a year each. It's my choice to take a position with a client company down the road, but for now, the money, benefits, and flexible schedule work well for me. RECN and the consultants working for them build strong client relationships. Once I work for a Client, they request me for their next project. We don't do "Kelly-Girl" stuff...
      and RECN doesn't do drive by interim staffing.
      Their model works.

    • I agree with you regarding the potential for significant growth opportunities in the future. I stated it in an earlier message. Do we really think that the only way this company can grow, after five short years of existence, is to start new offices. If they have reached that kind of market penetration, their management team should be on the cover of every business magazine in the country. I think the following should be considered:

      1. They were started as an arm of a Big 5 firm. For the first couple years, they were focused on finance and accounting. It's doubtful that all the offices opened at the same time, has anyone seen data on this from the company? It's further doubtful that they have penetrated every possible buyer in every large company across the country (Having been in the professional services industry in the past, I doubt that they have done this in one company of any notable size as of yet).

      2. They have subsequently added both HR and IT service lines. I don't think either service line has been around for that long, (couple years), but again, have they done such a bang up job of cross selling that they have achieved full penetration? Again, highly unlikely.

      Bottom line of the company, short term, they may experience a hicup with regards to earnings, no doubt the economy may take it's toll. What company is not affected by the economy at some point. Longer term, and I would agree with you MB0285, this down turn may take longer than 6 months to work through(and from my opinion it started in April 00, so it already has), but it will come back and they will continue to grow. The Big 5 can not compete with this company, I was in one, they are fractionalized, territorial, etc. Regional players will always be a factor, but as the Big 5 proved with the audit industry, serving multinational companies requires multinational presence. Consolidation will occur with the regional players at some point, it already has begun. But blending culture will be a hurdle for these companies to overcome when it occurs.

      Long term, every market indicator is pointing to more,not less, project based type workers. Workers want the autonomy and companies don't want the liability.

      And we have not even begun to discuss additional service lines, which I for one, hope is a couple years away.

      Regards

    • You make good points, but aren�t these the same factors that must be taken into consideration in growing any company? I think RECN has plenty of opportunity for significant growth over the next several years or longer. Meaning that 30% growth is reasonable given a good management team and employees. RECN is growing by adding people to existing offices as well as opening new offices.

      In the CC RECN said that it endorsed analysts� LT average growth rate of 30%, so this is coming from the company as well. As 30% is much less than the 76% growth it achieved last year, it would seem they have taken some of your concerns into consideration, including market conditions, in projecting future growth. They also said in the CC that although June was slower than anticipated, it was within 2% of what they had budgeted. Booked revenues for June and July were higher than the previous year. The economy should most certainly be turning around by early 2002. In the meantime, they are doing quite well in the midst of the current economy.

      Any consulting firm, whether it is in the area of technology, or finance, or defense or any other field knows that when a contract ends it must have other contracts to keep their employees billable. I do not work for RECN, never did, I am retired. I did work many years ago (long before the recent tech boom) as a contract employee and a consultant in the high-tech area, so know that there can be recurring business with some customers not only for periods of several months, but over a period of years as well. You continue to hire employees because your business is growing and the opportunities are there. You have a sales staff whose job it is to keep the contract employees billable. There is always business to go after, and in downsizing markets outsourcing does very well.

      It appears that, given RECN�s size, it has plenty of room to grow before it reaches the size of an ACN (estimated LT growth 16%) or KCIN (estimated LT growth 17%). ACN announced today that it intends to purchase Epylon Corp, so there is further opportunity for growth through acquisition as well, even though they are laying off 1,500 employees. ACN has 110 offices with 75,000 employees in 46 countries with revenues of $4 billion last quarter. KCIN has 10,000 employees working out of principal offices in 17 countries with revenues of $722 million last quarter. RECN only has 41 offices with 1,500 employees and global offices in 5 countries with revenues of $55 million last quarter, its rates are lower than the competition, it has a good reputation and finds it can compete against independent consultants and other firms. I agree that once they reach a certain size, their growth will slow, and they obviously agree as well. But even ACN with its size has an estimated LT growth range of 12% to 20% with an average of 16%. For a significantly smaller company, 30% growth seems reasonable. Management seems to be doing a very good job. Sorry for all the numbers, but it helps to support the point.

      By the way, RECN received a 'BUY' rating from CS First Boston today with a target price of $29.

    • Yes, with the economy slowing down there is a chance that they will not be able to find new work. Yes, if they do not find new work consultants will leave to get work elsewhere. That would happen to any company. If you do not keep people busy they will leave or the company will cut them as they can not be on the bench for ever.

      However, I talked to someone who has been with the company for 3 years. They have had only 2 weeks of downtime. Additionally, you assumption of revenue growth only by opening new offices is too limited. One, the projects usually provide more project work for the consultant or others. Finally, there are other professions the company could easily expand into for increased revenue - Legal comes to mind.

      I am curious what office of Solomon Edwards do you work for?

    • I would like to know how much of their revenue comes from technology companies and start ups. I bet a good bit. You have to assume that this part of the business will take or has taken a big hit especially during this summer when the tech companies' businesses are slowing down faster than can lay people off.

      It is a bigger problem than many of you probably think because the tech slowdown is not a 3 month or 6 month thing. It has the potential of lasting several years.

    • You are getting bogged down in the numbers. You need to look at the big picture.

      Let me just provide you with a couple problems that I see facing this company.

      Their revenue is non-recurring for the most part. This means after a consultant is done a job, they have to hope that there is another job waiting for this consultant once he is done. And for them to continue growing their eps, they need to get jobs for the new hire consultants as well. Just think for a minute how difficult it is going to be to continue getting more and more assignments for all of their consultants. If there is a sudden sharp slowdown, which I think we are in the midst of, this could have a dramatic impact on the bottom line. I am curious db_s99, do you work for RECN? If so, you know what I am talking about. If not, you need to understand their business model better. This is not a risk-free business and I don't think you are taking that into consideration. Just because analysts are saying that the company is going to grow eps 30% per year, you can't take that for granted. The main reason revenue is growing so fast is because they are opening up new offices and going into new markets. Once that stops, which I think it will soon, they will not be showing such high revenue growth.

      You need to start thinking more about what the potential impact is on their business if they can't keep their consultants billable. If this were to happen some consultants might decide to quit and get a full-time paying job where they don't have the risk of not getting paid every week. It is certainly a reason why I didn't go with them.

      I think this is a big issue and one that has not really been addressed by people on this board.

    • According to Manpower, Inc.'s (MAN) most recent press release, Jefferson Wells is one of their subsidiaries.

    • Let me add: The 1-year Growth Rate of 76.26% is for the past year. No one knows what the future growth rate will be, but analysts are projecting an average of 30%, with a low of 25% and a high of 35%.

      RECN has, in the past, beat analysts estimates. This quarter would be first they missed, if they do in fact miss.

      Even using a conservative 30%, the current P/E is reasonable.

    • I've sent an email to IR to see if they are willing to share who RECN's competitors are. Will post any reply I get. Have also read extrainer's comments on RHI as not being a pure play.

      Comparing RECN to the Business Services Industry, the Services Sector, and the S&P 500 are just a few of many valid indicators to be used in evaluating a company. Just as a note, one point I was trying to make initially is that P/E is not the only factor to consider in evaluating a company.

      If there are no other pure play competitors, and if it turns out that RECN's competition includes companies offering a wider range of services (such as ACN), then it may not make sense to use those companies' fundamentals to indicate what RECN's should be.

      fmhglic has provided names of a few private companies. Will see if IR provides names of other public companies they run up against. Would it make more sense to compare to companies that are performing as well as RECN, rather than ones that have not been performing well? And then, do you decide that just because another company has a lower P/E, or is different in any other fundamentals, that that company should then be the benchmark that RECN should be measured against?

      I found this in the education section of Multexinvestor.com. [All things being equal, one would prefer a company with a lower P/E than a higher P/E. However, the old adage, "You get what you pay for " applies to stocks as well. You should be willing to pay a premium P/E multiple for a rapidly growing company because you expect its future earnings rate to be higher. A good rule of thumb is that a stock is attractive if its P/E ratio is lower than its long- term compound growth rate in EPS. (These growth rates can be found in the Market Guide Highlights Report.) Conversely, if the company's outlook is more uncertain due to factors such as competition, a lawsuit, or a cyclical downturn, then you may wish to discount your valuation expectations by insisting on a lower P/E multiple.]

      http://www.multexinvestor.com/MGI/education.asp?target=%2Fstocks%2Feducation%2Fs
      nap%2Fratandstat%2Fsvalu&Ticker=RECN


      RECN is growing at a faster rate than the other public companies we have discussed so far. RECN�s 1-year EPS Growth Rate is 76.26%, so the P/E is below that (not saying the P/E could stand to be that high, just that it is lower than its EPS Growth Rate). It has not been trading long enough to show 3- and 5-year Growth Rates. Whether or not RECN is in a cyclical downturn will be determined from their next earnings. They say they will meet revenue, we do not know by how much, or if, they will miss earnings. If they miss by a small amount, would that be enough to show a cyclical downturn, or will it just lower the EPS Growth Rate by a small amount?

      We still are not clear who RECN's competition is, and how much of a threat they may or may not pose.

      On the other hand, ACN's 1-yr EPS Growth Rate is only 21.8%; KCIN's has been negative and so is simply stated as NM (not measurable); RHI's is 30.55%. Using this criteria, RECN does deserve a higher P/E.

    • Parsons Group and Jefferson Wells. Both Private. Tatum CFO is a more premium brand. I have heard the ratio of CFO at Resources is quite high. Any one know?

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