For Subscribers

Get the complete article now!

Two analysts and top management from two sector firms examine the consumer sector in this special 19-page Management Consulting & Market Research issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info454.htm

TWST: How are you approaching the group as a whole?

Mr. Creech: The soft economy has placed pressure on the valuations of the companies we follow and other publicly traded marketing research firms over the last 18 months. While we continue to see some weakness in the sector on the earnings side, we believe the industry has begun to show signs of a recovery. One reason for our optimism has been the recent industry consolidation activity that has piqued investors’ interest. Three of the industry’s best known firms (AC Nielsen, Total Research and Yankelovich Partners) were all acquired this year. Given that this industry is highly fragmented, with few public companies left, we are focusing on quality public companies with a strategic advantage. We believe the remaining public companies should benefit from the acquisition activity as investors compare the valuation these companies were acquired at to the valuation of other publicly traded stocks.

TWST: How do you value a company?

Mr. Creech: We focus on metrics such as EBITDA to total enterprise value, return on equity and projected long-term growth rates. All are measures of how a company has performed and should perform in the future. In particular, we track the change in these metrics over time, and how they compare to its competition. The strength of a company is dependent on both its level of profitability and how it compares to the industry. It is easy for all boats to be lifted in a rising tide. Our investors would like to know which companies are headed to the top of the wave. We use the same analysis to determine our long-term target price for a stock. We track the price to earnings ratio over time for a company and its competitors. We make changes in our buy, sell and hold ratings based on fluctuations to a stock’s price to earnings ratio in relation its to historical average and compared to others in the industry.

TWST: Over the past year, have any of these companies exceeded your expectations?

Mr. Creech: Although the stock prices of the companies we follow have been disappointing, we believe these same companies have made changes to their organizations that should correctly position them to outperform both their peer group and the overall market over the next 12 to 18 months. Opinion Research (Nasdaq:ORCI) and Harris Interactive (Nasdaq:HPOL) are both examples of companies taking the opportunity to reposition themselves during a market downturn. Harris Interactive has done a commendable job leading the industry in innovation. A few years ago the company made a significant investment in the Internet, to prove to the industry that the Internet could be used as a data collection tool. This is something that is relatively new to the industry. A few years ago, most researchers agreed that data collected off of the Internet was not credible, and could be corrupted very easily. So when researchers polled via the Internet, the confidence in that data was low. What they’ve done over the last couple of years is refine the technology and the polling process on the Internet to determine whether or not they can get accurate data. More importantly, the company has refined the use of the Internet to cost effectively conduct broad-based polling marketing research. Although the company has identified some differences between online and offline responses from panelists, the company has created proprietary weightings to account for the anomalies. Since 1995, Harris has been conducting tests to refine its data collection techniques through the Internet, well before other marketing research companies considered using the Web as a data collection tool. Utilizing parallel tests, researchers are now confident they can gather credible data from panelists on the Web.

This special issue includes:

1) Outlook for Marketing & Advertising Services - In an in-depth (5,700 words) Analyst Interview, David B. Doft, Managing Director and Senior Analyst at ABN AMRO, examines the outlook for the sector and shares specific stock recommendations.

2) Management Consulting & Market Research Companies - In an in-depth (3,500 words) Analyst Interview, Alan K. Creech, Vice President, Consumer Information Technology at Emerging Growth Equities, Ltd., examines the outlook for the sector and shares specific stock recommendations.

3) CEO interviews (average 2,500 words). Top management of two sector firms examine the outlook for their firm and the sector.