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Scient surges to leave crumbling consultants behind

3 min read

Scient (Nasdaq: SCNT) shot up 32 percent Friday morning, after an upgrade from William Blair and some behind-the-scenes investor relations work helped separate it from the crowd of crumbling Internet consultants.

"I believe the sell-off is overdone. Analysts downgraded the stock largely due to industry weakness," said William Blair & Co. analyst Matthew A Litfin in a phone interview. Shares were up 5 to 25.75 in mid-morning trading after he raised the stock to ``strong buy'' from long-term "buy."

The stock had fallen off lately along with similar companies IXL (Nasdaq: IIXL), Viant (Nasdaq: VIAN) and Xpedior Inc. (Nasdaq: XPDR), which warned that their upcoming quarters would be weak. The companies blamed dot-com clients that couldn't pay up, and slowing demand from big corporate clients.

"Its pipeline is building. Scient should be included with leaders like Sapient (Nasdaq: SAPE) and Proxicom (Nasdaq: PXCM)," Litfin said. He sees "near-term upside as investors begin to revalue Scient as a sector leader."

Other analysts agreed the company has been wrongfully lumped in with second-tier players, and believe it's on target to meet the consensus expectation of 6 cents a share for the upcoming second quarter.

"Management has been proactively talking to analysts and investors to differentiate (Scient) from iXL and Viant," and convince them they can meet estimates, said Laura Browder, who covers the stock for A.G. Edwards & Sons.

Browder recently downgraded the stock to "maintain" from "accumulate." "It wasn't really because of Scient," she said, noting the downgrade hinged on the environment for Internet consultants. "I do believe once we get through this, the stronger companies will survive. We're starting to see this already with Scient, quicker than I would have expected," Browder said.

William Loomis, an analyst for Legg Mason also downgraded the stock based solely on the climate for Internet consultants. He lowered the stock to "market perform" a few weeks ago, and said he "thinks it will be difficult for (Scient) to shrug the market environment." He said that though Scient hasn't issued an official statement, recent conversations with the company indicate they "support current estimates."

"They were lumped in, the market felt this company had the chance to miss as well," said James Janesky, analyst at B of A Montgomery. He noted that the stock was even higher than today's levels before its competitors were downgraded last week.

Though Janesky didn't downgrade the stock recently, he had lowered it to "market perform" from "buy" in June, anticipating that a shift away from emerging market companies to more "Global 2000" clients would put pressure on the company.

Ultimately, this is what will make it a survivor in its field, along with Sapient, another big e-solutions type company which has seen shares drop sharply, but hasn't issued a statement for its upcoming quarter. "I don't anticipate one," Janesky said, though he does anticipate limited upside for the quarter as compared to the past year's.

Other elements that differentiate Scient and Sapient from competitors is their longer histories and strong management, Janesky said. Robert Howe, Scient's CEO, "built a huge organization at IBM." Scient and Sapient have been around longer and built their business gradually, so they have financial controls and a sales force firmly in place, unlike ballooning start-ups that now lack infrastructure because they just "had too much business dumped in their laps."
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