Baird Says 'Buy The Dip' In The Advisory Board Co, Upgrades To Outperform

In a report published Monday, Baird analyst Matthew Gillmor upgraded shares of The Advisory Board Company (NASDAQ: ABCO) to Outperform from Neutral with a price target raised to $60 from a previous $55 following the stock's 20 percent decline after the company reported its second quarter results.Gillmor noted that shares of The Advisory Board fell due to performance issues with Royall & Company, the company's higher-ed platform which was acquired in January. The unexpected departure of Royall's CEO and CFO during the "busy" January-to-June selling season left its toll on the company and investors "seem well-aware" a recovery will be slow.In fact, some investors remain concerned that growth in Royall rests with the company's old management team that delivered a historical 17 percent growth rate, Royall's growth slowed to around five percent year to date in the recent quarter while the analyst suggested that the underlying growth was closer to nine percent – "much better" than feared.Meanwhile, Gillmor stated that The Advisory Board's Core business remains "strong" as the company reported its contract value increased 17 percent in the quarter (excluding Royall) which happens to be the fastest growth rate shown in three years. As such, investors might be better off focusing on the 85 percent of the company that "seems to be firing on all cylinders" rather than focusing on just Royall.Bottom line, shares of The Advisory Board has historically traded at a 15-20x forward EBITDA multiple and rarely sustained a multiple below 14. From a historical perspective, the stock proved to rally by 20 percent or more each time it touched a 14x multiple. Finally, the analyst pointed out the company's CEO and a board member each bought "significant" amount of stock last week which is "clearly a sign of confidence," although investors shouldn't read too much into these transactions.