Merrill Lynch upgraded Heidrick & Struggles (HSII) to buy from neutral, explaining that the firm expects the executive search outfit to have accelerating profit growth.
Analyst Michel Marin notes that the company is moving to a 40% reported tax rate in 2006, so he's focusing on operating instead of net profit. The analyst projects normalized operating profit growth for the company will accelerate from 12% in the second quarter to 30% in the fourth, at a rate he believes can be sustained in 2007. He also notes that margins are poised to expand following a European restructuring in mid-2005. He thinks dividends will likely be a focus at the company's next board meeting, and believes the company could easily afford to pay $1.00 per share per year. He maintains $1.94 in 2006, $2.54 in 2007, and $2.84 in 2008 earnings per share (EPS) estimates. He has a $47 stock price target.