Analyst Downgrades Resources Connection

The stock fell 60 cents, or 3.2 percent, to close at $18.23 Thursday.

Problems in the broader market currently hampered by the subprime credit crisis will have a larger impact on the company than initially anticipated, Morgan Stanley analyst Christina Woo said.

"With macroeconomic headwinds looming, we have been too optimistic about the magnitude of near-term growth prospects and margin potential," she wrote in a client note.

Woo lowered her 2008 earnings forecast to $1.08 per share from $1.19 per share, and slashed her price target to $22 from $34.

Still, much of the impact from economic woes is already built into the stock, which has seen a 36 percent drop in value since Sept. 25 when fiscal first-quarter results were posted, she said. And despite the weakness, sales should continue to grow through the remainder of fiscal 2008, she said, noting that new offices tend to take one or two years to turn a profit, and 88 locations opened in 2007.

"The company's four-pronged expansion efforts are compelling, and its business model offers a value proposition for its clients and its employees that engenders loyalty, increasing our confidence in prospects for renewed growth," Woo said.

The stock, however, may be affected by investors wary of committing to staffing stocks, a sector in which the Irvine, Calif.-based company usually trades, she said.

Last week, analysts with Lehman Brothers and Robert W. Baird & Co. also lowered profit estimates on Resources Connection, citing reasons similar to Woo.