American Management Systems gains on settlement news

American Management Systems recouped some of its huge losses from last week Tuesday when it announced it had settled a lawsuit with the State of Mississippi.

Its shares moved up 4 1/16, or 26 percent, to 19 7/8.

The technology consulting firm said it will take a third-quarter charge of $23.5 million, or 56 cents a share, from the case, which was related to the development of an automated tax system for the state. The settlement calls for Mississippi to receive $185 million, most of which will be paid by American Management’s insurers.

The Fairfax, Va. company watched its shares collapse in the past week after a jury awarded the State of Mississippi actual and punitive damages of $474.5 million for allegedly failing to deliver on its commitment to develop an automated tax revenue system for the Mississippi Tax Commission.

"It is unfortunate that we could not put this situation to rest," said CEO Paul Brands in a prepared release shortly after the decision. "We find the amounts involved inexplicable given that the contract was valued at $11.2 million, of which approximately $6 million had been paid to AMS."

Following the verdict, Legg Mason, Barrington Research and BB&T Capital Markets all downgraded the stock.

On Tuesday, all three did an about-face after the settlement was reached.

Legg Mason raised the stock back to a "buy" recommendation from a "market perform" while Barrington Research and BB&T Capital Markets

In its latest quarter, American Management Systems posted a profit of $16.1 million, or 39 cents a share, on sales of $318 million.

First Call Corp. consensus expects it to earn 47 cents a share in the third quarter and $1.77 a share in the fiscal year.

Its shares hit a 52-week high of 44 3/8 in March before swooning to a low of 14 earlier this week.

Five of the eight analysts following the stock rate it either a "buy" or "strong buy."