On Dec 2, we upgraded our long-term recommendation for
management services provider
FTI Consulting, Inc.
) from Neutral to Outperform. The company's diligent execution of
operational plans, strategic decision to extend its global
footprint and continuous organic growth across the industry
verticals augur well for its growth prospects. However,
continuous budgetary pressures along with a weak macroeconomic
environment could weigh on the margins moving forward.
Why the Upgrade?
FTI Consulting is well positioned to benefit from an increased
regulatory scrutiny and a proliferation of corporate litigation,
which would leave the management teams of public companies with
little leeway to deal with complex issues. External pressure on
the management teams is further compounded by active
investigations by government auditors and authorities including
the Securities Exchange Commission (SEC), the Department of
Justice (DOJ) and the state attorneys.
Additionally, structural changes have become a necessity in the
rapidly evolving global markets as management teams look to fend
off rivals, protect intellectual property rights and transform
businesses via M&A, divestiture and other restructuring
activities. We believe that the demand for the company's
specialized consulting services should experience a robust growth
over the long term.
Internationally, FTI Consulting's unique capabilities of bringing
together damage assessment, accounting, economics, statistics,
finance, industry and global footprint make it an excellent
partner for clients dealing with international arbitration
issues, and generating continued revenue growth in the existing
international operations, coupled with contributions from the
acquisitions made over the past few months in Europe, Asia and
Latin America. FTI Consulting's international expansion remains
strong and will likely continue in the future as well.
Earnings estimates for full year 2013 for FTI Consulting have
moved up in the last 30 days as 4 out of 5 estimates have been
revised upward. The current Zacks Consensus Estimate for the year
is pegged at $2.30, up 6% from $2.17 in the last 30-day period.
This represents a healthy upside from management guidance of an
adjusted EPS for 2013 in the range of $2.10 to $2.20. The stock
is also trading near its 52-week high with a forward PE of 19.6x.
All these factors offer a solid investment proposition for the
However, despite improving corporate earnings and a strong
corporate liquidity, clients' spending patterns remain cautious,
given the concerns over the current market environment, volatile
financial markets and a lack of visibility regarding the impact
of future tax and regulatory policies.
Certain parts of the business have also been experiencing pricing
pressure. As such, the company may witness lower margins. The
changes in capital markets, legal or regulatory requirements and
general economic factors could further reduce demand for
services, which thereby could affect the company's overall
Other Stocks to Consider
FTI Consulting has a Zacks Rank #1 (Strong Buy). Other stocks
that look promising and are worth considering now in the industry
), carrying a Zacks Rank #1 (Strong Buy), and
Corporate Executive Board Co.
), both carrying a Zacks Rank #2 (Buy).
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