Strong earnings send Sapient higher

The Cambridge, Mass.-based consulting firm reported impressive earnings after the markets closed yesterday and announced a 2-for-1 stock split.

Sapient, which helps companies formulate strategies for doing business on the Internet, reported second-quarter net income of $15 million, or 22 cents a share, up from $7.69 million, or 13 cents, a year ago. According to a survey of 20 analysts by First Call/Thomson Financial, Sapient was expected to earn 20 cents.

Revenue rose to $125.8 million from $64.2 million, a 96 percent increase.

Sapient stock gained $15.94 to $119.81 on a volume of 4.2 million shares, more than four times the average daily volume. The stock has traded within a range of $151.18 to $23.87 in the past 52 weeks.

"They had a very, very strong quarter," said Greg Gould, an analyst at Goldman Sachs. "Everything about the quarter was either better than expected, or if it met expectations, better than industry averages."

Sapient has "become better at raising prices, which they have not done as aggressively as they have in the past," he said. Gould also added that the company has done a "better job at pursuing the right kind of projects, recruiting for those projects and executing."

However, the quarter was not all rosy. About a month ago, competitor Scient announced that it will write off some fees from some failed dot-com customers. The news sent Internet consulting stocks lower on concern that consultants would suffer if more Internet companies imploded.

"Anyone that does business with dot-coms is going to have a problem with (exposure)," said Laura Lederman an analyst at William Blair. About 16 percent of Sapient's customers are pure dot-coms, which Lederman called "a relatively small exposure."

Gould added that Sapient has prepared itself for a downturn in the Internet sector. "If the dot-com business goes away, there's a lot of (customer) backlog, so they can backfill their pipeline," he said.

Analyst Jim Janesky of Banc of America Securities said one of the company's challenges will be "maintaining a sequential growth rate that keeps investors happy so they can maintain the high (revenue-to-stock-price) multiple."

"One of the ways they're doing that is pushing into international markets," said Janesky, adding that overseas markets are currently "underpenetrated" and growing faster than markets in the United States.