Economic strength, encouraging service activities, increased adoption, and the success of the work-from-home trend enable Zacks Consulting Services industry players to support the demand environment.
Driven by these positives, investors interested in the industry would do well to keep stocks like Gartner, Inc. IT, Stantec Inc. STN and Exponent, Inc. EXPO in their portfolio.
About the Industry
Companies grouped under the Consulting Services category offer professional advice in management, IT, human resources, environmental regulations, logistics and marketing, and real estate, serving multiple end markets. The space includes prominent names such as Accenture and Gartner. The industry focuses on channeling money and efforts toward more effective operational components, such as technology, digital transformation and data-driven decision-making. To position themselves suitably in the post-pandemic era and better utilize opportunities that an economic recovery will bring, service providers are increasing their efforts toward formulating and reassessing strategic initiatives, identifying sources of demand and targeting end markets.
What's Shaping the Future of the Consulting Services Industry?
Exponential Growth: This multi-billion-dollar industry has witnessed exponential growth since the 2008 financial crisis, enjoying steady revenues, profit and cash-flow growth. Consequently, the trend has enabled most industry players to pay out stable dividends.
Economic Recovery: The sector is a major beneficiary of the broader economy and service activities. According to the "third" estimate released by the Bureau of Economic Analysis, GDP grew at an annual rate of 3% in the second quarter of 2024 compared with 1.6% growth in the first quarter. Economic activities in the non-manufacturing sector are in good shape. As of September, the Services PMI, measured by the Institute for Supply Management, had stayed above the 50% mark for the 49th time in 52 months.
Strong Demand Environment: The consulting services industry is one of those least affected by the pandemic and its after-effects. This is because even in a volatile situation, organizations require extensive advice on protecting their employees and staying closer to consumers and shareholders. This industry is one of the earliest pioneers of remote working that has become part of the new normal. The nature of work enables industry players to function efficiently through the increased use of technology.
Zacks Industry Rank Indicates Bright Prospects
The Consulting Services industry, housed within the broader Business Services sector, currently carries a Zacks Industry Rank #53. This rank places it in the top 21% of 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates solid near-term growth prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and current valuation.
Industry's Price Performance
The Consulting Services industry has underperformed the S&P 500 composite and broader sector in the past year. The industry has gained 35.1% compared with the S&P 500 composite’s rise of 39.4% and the broader sector’s rally of 37.7%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E), which is a commonly used multiple for valuing consulting services companies, we see that the industry is currently trading at 29.9X, above the S&P 500’s 22.06X and the sector’s 25.01X.
Over the past five years, the industry has traded as high as 34.56X and as low as 21.4X, with a median of 27.69X, as the charts below show.
Price to Forward 12 Months P/E Ratio
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3 Consulting Services Stocks to Consider
Exponent: The company is known for its interdisciplinary engineering and scientific consulting services. Exponent serves diverse industries, including healthcare, technology, and energy. Its risk assessment and failure analysis expertise positions it as a key player in addressing complex technical challenges. The company’s consistent revenue growth and profitability highlight its resilient business model, largely due to recurring contracts with established clients and a strong reputation for reliability.
The Zacks Consensus Estimate for the company’s 2024 EPS has increased by 1% in the past 60 days to $2.06. EXPO currently carries a Zacks Rank #2 (Buy). The stock has gained 32% in the past year
Price and Consensus: EXPO
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Stantec: The company stands out for its robust portfolio of engineering, architecture, and environmental services, addressing essential sectors such as infrastructure, water, and urban development. Known for its sustainable and community-focused designs, Stantec benefits from increasing demand for environmental and infrastructure solutions. The company’s global presence and well-diversified client base reduce dependency on specific markets, supporting revenue stability.
Stantec’s strategic acquisitions and commitment to innovation in sustainability have bolstered its capabilities, making it a preferred choice for large-scale public and private projects. Strong financial performance, including consistent revenue growth and a solid dividend, enhances its appeal to investors.
The Zacks Consensus Estimate for the company’s 2024 EPS has remained unchanged at $3.07 in the past 60 days. STN currently carries a Zacks Rank #2. The stock has appreciated 33.5% in the past year.
Price and Consensus: STN
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Gartner: The company is a premier research and advisory firm specializing in the information technology sector. It provides invaluable insights, data, and tools that inform IT-related decisions for enterprises worldwide. Gartner's flagship offerings, such as the Magic Quadrant and Hype Cycle reports, are instrumental in helping organizations assess technology trends and vendor positions within the market. The company's extensive global reach and broad client base spanning various industries contribute to its robust financial performance.
The Zacks Consensus Estimate for the company’s 2024 EPS has increased slightly in the past 60 days to $11.65. IT currently carries a Zacks Rank #2. The stock has gained 56% in the past year.
The Zacks Consensus Estimate for the company’s 2024 EPS suggests an 18.5% improvement from the year-ago reported number. The consensus estimate has increased by 3.2% in the past 60 days. HURN currently carries a Zacks Rank #2. The stock has gained 12% in the past year.
Price and Consensus: IT
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
