Towers Watson & Co. rebounded from an annual low this week, jumping 7 percent Wednesday, with at least one industry watcher saying that the sell-off was overdone following a disappointing fourth quarter.
THE SPARK: Towers Watson, a risk management and human resources consulting company, said early Tuesday that its revenue in the fiscal fourth quarter fell, in part because of softness in Europe. The company also provided first-quarter guidance on Tuesday that was far below Wall Street's expectations. Towers Watson closed down 12 percent at a 52-week low of $51.68.
THE BIG PICTURE: Overnight, investors and analysts reevaluated the company's quarter, looking at things like potential growth and the currency exchange rates that hurt Towers Watson, but were out of its control.
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"We believe the results are neither as weak we they first appear nor a sign of a longer-term structural issue," William Blair analysts wrote Tuesday.
THE ANALYSIS: The analysts identified three reasons why the results looked worse than they actually were:
— Towers Watson is transitioning to a new internal software platform. It was unable to recognize some revenue because of billing delays caused by the transition.
— The company's healthcare exchange segment is growing quickly. Seasonal factors tend to make that business weaker in the first half of the fiscal year. The analysts expect its revenue to grow quickly in the second half.
— Analysts hadn't lowered their expectations to reflect recent changes in currency exchange rates, the analysts said. The strong dollar cost Towers Watson about $12 million of revenue, compared to its earlier assumptions. That's twice what analysts had expected.
SHARE ACTION: Towers Watson rose $3.41, or 7 percent, to $55.09.
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