Resources Connection Shares Could Trade Down To $13, Deutsche Bank Warns

According to Deutsche Bank’s Kevin McVeigh, Resources Connection, Inc. RECN “is a professional services firm with a variable pay model, making it a hybrid between a professional services and staffing firm.”

McVeigh initiated coverage of the company with a Sell rating and price target of $13.

Business Model

“While we like this business model in the longer term, we believe the Street has to become more comfortable with estimates as they come down and management communicates, before we become more positive and a lot of the discount for volatility comes out of the stock,” the analyst mentioned.

A typical associate of Resources Connection has 20 years of experience, which makes the skill and input level compelling. However, the company doesn't take on utilization or project risk, not does it deliver any audit or financial opinions.

Bill Rate

The average associate bill rate is about $125 per hour, which is significantly higher than other professional staffing firms, although lower than the $200-$500 rate of the Big 4 audit firm or financial or legal consulting firm.

This lower rate is partially due to the need for insurance and lack of utilization risk, McVeigh explained.

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