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Thursday, August 10, 2006

Hewitt (Part 4) Things We Like

By William Trent, CFA of Stock Market Beat

Human resources is a complex and time-consuming task for most companies. Although HR ultimately works as a major determinant of success or failure, the function itself is usually seen as a cost center. As a result, many companies would prefer to pay someone else to do it for them. The potential business opportunity is quite large.

Within the HR outsourcing arena, Hewitt is well positioned as an objective provider. Most of its competition comes from firms that do benefits administration in order to gather assets for their investment business or that have extended a basic payroll function. By offering the full range of services and not being conflicted by ties to a particular benefit provider, Hewitt has an advantage when competing for clients suspicious of others’ motives.

The company is unwinding its relationship with FORE holdings, which presented conflicts of interest between shareholders and management.

Cash flow from Operating Activity rose considerably more than net income year-to-date. However, this may be temporary as there was a large increase in accrued compensation (relative to the previous year) that will ultimately be paid.

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