Hewitt Shares Get Rich Quick

SAN FRANCISCO -- Benefits outsourcing firm Hewitt Associates (HEW Quote) has won bonus credit from investors who see past the company's weaknesses and mixed outlook.

But fresh off setting another 52-week high, it may be time to question how much longer that will continue.

Shares in the business outsourcing firm have greatly outperformed shares of the company's peers despite middling revenue growth and continued losses in a major business unit. The stock is trading nearly 45% higher than where it opened the year.

Hewitt was recently up 5 cents to $38.20.

Investors' optimism likely stems in part from the solid profitability of its core payroll processing unit, and the growth in its consulting arm, Hewitt's second-largest business. In the last fiscal year, consulting revenue grew 12%, and accounted for 32% of total sales, up from 29% a year earlier. By contrast, total sales rose only 5% to about $3 billion.

Cost controls helped operating income grow 67% in the last quarter, and rise 29% for the fiscal year, when adjusting for one-time items gains and charges.

Perhaps more important, mounting losses in its business process outsourcing unit, which accounts for about 18% of revenue, have begun to plateau and appear more manageable.

"I think investors were always aware of the underlying strength of the core business, but are now getting their arms around the losses in the BPO unit," says Tim Fidler, portfolio manager at Ariel Capital Management, Hewitt's largest shareholder.