HCKT - Embedded Expectations Analysis - 2019 04 12
The Hackett Group, Inc. (HCKT:USA) is currently trading above corporate averages relative to UAFRS-based (Uniform) Earnings, with a 13.8x Uniform P/E. At these levels, the market is pricing in expectations for Uniform ROA to decline from 55% in 2018 to 26% in 2023, levels the firm hasn't seen since before the 2009 recession.Specifically, markets appear to be pricing in expectations for competitive pressures to negatively impact profitability, and for HCKT's product differentiation efforts for intellectual property-based strategic consulting, enterprise benchmarking, and best practices implementation to be insufficient to sustain demand for their services. Moreover, markets may be skeptical about the firm's organic growth strategy, as HCKT has focused on improving legacy product offerings and promoting other services to existing clients, while other industry players have consolidated and grown through acquisitions.
Hackett Group is an advisory and technology consulting firm. The company's services include benchmarking, executive advisory, business transformation, enterprise performance management, working capital management, implementing, training and advisory to global business services. The company also provides services in business strategy, operations, finance, human capital management, strategic sourcing, procurement, and information technology, including its Oracle and SAP practices. The company has engagements in a variety of industries, including automotive, consumer goods, financial services, technology, life sciences, manufacturing, media and entertainment, retail, telecommunications, transportation and utilities.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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