- The Washington Times - Monday, July 30, 2001

When a stock drops in price, it can mean either the beginning of the end for the company, or it can mean a time for stockholders to capitalize on the downfall and buy the company's stock cheap.
American Management Systems Inc. (AMS) saw its stock fall 27 percent from a closing price of $23.76 on July 13 to $17.30 on July 20 after the Federal Retirement Thrift Investment Board fired the Fairfax consulting firm from a contract that called for AMS to design a record-keeping system for the board. It also filed a lawsuit worth $350 million for breach of contract in the United States District Court.
In a statement released on July 17, AMS said it remained "fully committed to the successful completion of the new record-keeping system for the Thrift Savings Plan." The company said it was "disappointed by the actions of the Federal Retirement Thrift Investment Board that are intended to shift the focus from the Board's own deficiencies in performance and contract breaches."
The company also reported lower second quarter earnings. Earnings for the second quarter ended June 30 dropped 71 percent to $4.6 million (11 cents per share) from $16.1 million (39 cents) for the like quarter the year before. The company blamed the smaller earnings on an $8.7 million restructuring charge. The stock closed at $17.84 Friday.
The company previously faced a lawsuit filed by the state of Mississippi last year, also for a breach of contract. The company eventually settled the lawsuit by paying the state $185 million. The stock rebounded after news of the settlement broke, but some analysts aren't sure if American Management Systems can bounce back after facing two lawsuits in less than a year.
Joe Buttarazzi, an analyst with Adams, Harkness and Hill, downgraded his rating of the stock from a neutral rating to sell.
"This is a pretty ugly situation for what it could mean for the company," Mr. Buttarazzi says. "The announcement of this lawsuit makes the hurdle that much higher. They now have to go out and win over clients again."
He advises against buying AMS stock, even if it is now at a low price.
"I say the risks overhanging could destroy all value of the stock. If they lose this lawsuit, it could wipe out the liquidity of their balance sheet."
Michael Hutchison, senior investment analyst with Barrington Research in Chicago, rates the company's stock as a "buy," though he understands why the stock price plummeted.
"People are looking at the stock, and thinking there's blood in the water, he says. "They're still thinking of the Mississippi lawsuit, where they lost $11 million, and they're thinking there's the possibility of the same thing happening all over again."
But he believes the stock price of AMS will eventually rebound, to the benefit of those who buy now.
"As difficult as the Mississippi lawsuit was, there were some lessons learned there," he says. "They now know when to cut their losses, and know what they should or should not fight for."
Mr. Buttarazzi says that the entire consulting sector, with companies such as KPMG and Anderson Consulting, shows flat performance as a whole.
American Management Systems has been operating under an interim management team, and Mr. Buttarazzi says the sooner AMS can find a permanent management team, the better off the company will be, but only if the new management shows certain traits.
"If the new CEO is charismatic, the stock may rebound, but if not, the stock will continue to fall," he says.

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