CRA INTERNATIONAL, INC. (CRAI) stock intrinsic value fair value estimate & owner earnings analysis

CRA International is an economics and management consulting firm. Its consultants — mostly PhD economists and other subject-matter experts — advise clients and serve as expert witnesses on antitrust and competition matters, damages and class-certification analysis, regulatory questions, forensic accounting, and related disputes, along with strategy and financial consulting work. Revenue has grown from roughly $325 million to $752 million over the past decade, largely by expanding into new expert practice areas (life sciences, forensic services, competition economics, and now AI-related regulatory and intellectual-property disputes) as older ones mature — a pattern of continual practice renewal the firm has sustained for over five decades. Owner earnings (cash generated by the business after removing working-capital swings, stock-based compensation, and the capital spending needed just to maintain today's operations) have grown from roughly $2 per share in 2016 to a run rate in the $8-9 per share range over the last several years. We anchor our valuation on the median of the last five fiscal years (2021-2025), about $8.70 per share, rather than the full ten-year history, because the business shifted structurally over that period: capital spending fell from roughly 3-4% of revenue in the earlier years to under 1% in most recent years as the firm's office footprint became more efficient, while revenue nearly doubled. We think the last five years better represent CRA as it exists today. One accounting judgment worth noting: CRA increasingly retains and recruits senior experts using multi-year forgivable loans rather than pure cash bonuses. In fiscal 2025 the company issued about $86 million of these loans against roughly $33 million forgiven, nearly doubling the loan book to $107 million and creating a large, one-time-looking swing in reported operating cash flow even though net income reached a record $54.8 million. We treated this the same way the filings present it — as part of the normal working-capital reconciliation — and relied on the five-year median, rather than the distorted 2025 figure alone, to set the valuation anchor. We also set next year's growth assumption below both this year's revenue growth (9%) and net income growth (17%), rather than the far higher swing in the cash-flow-based figure, to avoid extrapolating a number we know was inflated by that one-time loan expansion. Our base case assumes revenue and owner earnings grow around 5-6% annually for the next several years, tapering to about 4% by year ten, consistent with CRA's steady historical expansion into new expert-services niches. Beyond the ten-year forecast, we assume owner earnings hold roughly steady in real terms rather than continuing to grow — we see no dated reason to assume perpetual growth for a business whose value depends on continually replacing senior experts as they retire, so we treat the value of the years beyond year ten conservatively, at a level equal to about 17 times year-ten earnings. Our bear case assumes a wave of senior-expert departures — for example, a competing firm hiring away an entire practice group and its client relationships — cutting owner earnings by about 18% in the first year and a further 5% in the second, with only slow, low-single-digit recovery after that as the firm rebuilds. This case still leaves the company solidly profitable; CRA's revenue has not declined in any of the last ten years even through the 2020 downturn, so we do not model a scenario approaching business failure. Our bull case assumes CRA's current momentum in antitrust, competition, and newer AI-related regulatory and IP-dispute work continues, with double-digit growth in the next two years fading to mid-single digits by year ten — growth built on demand for CRA's own specific practice areas, not a broader market re-rating. On these assumptions we value the shares in a range of roughly $125 (bear) to $260 (bull), with a base case near $211 per share. Given the relatively narrow bear-to-base spread — this is a fifty-year-old, low-debt, diversified professional-services firm rather than a single-product or patent-exposed business — the margin-of-safety price is around $155 per share, a discount of roughly 27% to our base-case estimate, set to allow for the more difficult scenarios. We did not find anything in the filings suggesting balance-sheet or going-concern risk: CRA carried only $34 million drawn on its credit facility against $18 million of cash at year-end, with $162 million of additional borrowing capacity available.