Analyst Actions; Resources Connection. Inc Ests, Target Price Raised at Credit Suisse

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Q113: Stable Demand Despite Tough Macro; Raise Ests/Target Price to $16 (from $15) on Gross Margin

$0.12 in Q1 EPS Matched $0.12 CSE/Consensus On Better Gross Margin & Lower SG&A With Inline Revenue, Despite $0.02 Higher Tax Rate Hit. $136.9M in Q1 revenue fell 0.8% YoY (+1.2% in constant currency (CC)), worse vs. Q4's flat growth, (stable vs. Q4's +1.1% CC growth); it about matched $137.9M Credit Suisse Estimate ( CSE )/$137M consensus. US grew 4.5% YoY (vs. Q4's 4.6%). Europe fell 18.5% (-7.7% CC) YoY, worsening vs. Q4's -14.7% (but slightly better vs. -8.5% CC). Asia/Pac revenue fell 6.5% YoY (vs. Q4's flat growth) on weakening in China. 7.1% Adjusted EBIT margin rose 220bps YoY (vs. Q4's +400 YoY) and exceeded 6.0% CSE/6.5% implied consensus on higher gross margin (+120 bps YoY vs. Q4's +210 bps)/lower D&A. $0.12 EPS matched $0.12 CSE/consensus despite $0.02 hit from higher tax rate.

Business Tone "Stable". Management described business levels (even in Europe) as "stable" despite heightened global economic uncertainty.

Q2 Revenue Trends About Stable In Constant Currency, But A Bit Light Vs. CSE/Consensus; Gross Margin Pick Up Expected Early Q2 weekly YoY revenue trends averaged -2% YoY growth (+1% CC), slightly worse than Q1's -0.8% YoY due to currency. We think early Q2 revenue trends are consistent with Q2 revenue falling below prior $145M CSE/consensus; however, management expects similar Q2 YoY gross margin expansion vs. Q1's.

Raising Ests. On Higher Gross Margins, Despite Lower Revs. We are reducing our revenue estimates, but a higher gross margin forecast increases FY13E EPS to $0.63 from $0.57 and FY14E to $0.79 from $0.71. We are also raising our FY15E EPS to $1.02 (from $0.91).

Maintaining OP Rating, Increase Target Price to $16 From $15. We expect RECN's share price in coming months to fluctuate with economic sentiment, but believe shares offer relatively strong long-term risk/reward.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Commodities

Referenced Stocks: CSE

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