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Monday, November 13, 2006

Hewitt: Another Miss, Still Not Cheap Enough

By William Trent, CFA of Stock Market Beat

We have looked at benefits outsourcing firm Hewitt Associates (HEW) several times, and each time we come away feeling like there is more risk than reward.

For example, back in August we said:
Furthermore, the lack of profitability shows that Hewitt was too aggressive in pursuing contracts. As a result, investors should not expect the company to grow as fast as the historic results would suggest. This is already showing, with consulting revenues down 3% year-to-date.

And lo and behold, Hewitt misses again, according to
Human resources services company Hewitt Associates Inc. (HEW.N: Quote, Profile, Research) on Friday reported weaker-than-expected quarterly earnings on higher expenses and investment in new services, sending shares down 2.3 percent.Earnings fell 43.3 percent to $22.9 million, or 21 cents per share, in Hewitt’s fiscal fourth quarter, compared with $40.5 million, or 37 cents per share a year earlier.

Analysts, on average, expected profit of 26 cents per share, according to Reuters Estimates.
Revenue edged 0.9 percent lower to $727.6 million, compared with Wall Street forecasts for sales of $720 million.

Hewitt cited higher performance-based compensation in its outsourcing and consulting segments, and said the weaker-than-expected results reflected a “deteriorating” profit outlook for its human resources business process outsourcing (HR-BPO) contracts.The author may hold a position in the securities discussed.

The author's current holdings are as follows: Long: Intuit (INTU) put options; Nasdaq 100 (QQQQ) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Lion's Gate (LGF); Three Five Systems (TFS); Adobe Systems (ADBE) call options; Ceradyne (CRDN); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Lion's Gate (LGF) call options; Dell (DELL) put options; Ceradyne (CRDN) call options; Plantronics (PLT) put options.

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