The consulting services industry comprises companies that offer professional advice in management, IT, human resources, environmental regulations, logistics and marketing, real estate, serving multiple end markets.
The industry is a beneficiary of non-manufacturing activities that grew for the 115th consecutive month in August, with the ISM-measured Non-Manufacturing Index touching 56.4%. The industry looks well poised for growth as globalization, consolidation and digitization that have been the key catalysts over the past few years will continue in the foreseeable future.
However, high cost of domestic talent due to a competitive labor market coupled with difficulty in attaining foreign talent due to Trump’s stringent policies on immigration is a headwind for consulting firms.
The Zacks Consulting Services industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #75. This rank places it in the top 29% of more than 250 Zacks industries and indicates strong growth prospects in the near term.
Given this backdrop, let’s do a comparative analysis of two consulting services stocks, FTI Consulting, Inc. FCN and Huron Consulting Group Inc. HURN. FTI Consulting has a market capitalization of $4.1 billion and Huron’s market cap is $804.7 million.
As both the stocks carry a Zacks Rank #1 (Strong Buy), we are using certain other parameters to give investors a better insight.
FTI Consulting has performed impressively on the bourse year to date compared with Huron and the industry. While FTI Consulting’s shares have surged a massive 62.6%, Huron and the industry have rallied 20.9% and 35.6%, respectively, over the said time frame.
Earnings growth along with stock price gains is often an indication of a company’s strong prospects.
FTI Consulting’s third-quarter 2019 earnings are projected to grow 3% year over year while that of Huron are expected to grow 3.1%. FTI Consulting’s 2019 earnings are projected to grow 35.5% compared with Huron’s expected growth rate of 20.2%.
Earnings Surprise History
Earnings surprise history gives investors an idea of a company’s performance in the previous quarters.
FTI Consulting and Huron have an impressive trailing four-quarter earnings surprise history. FTI Consulting delivered an average positive surprise of 70.8% compared with Huron’s 13.4%.
Net profit margin helps investors evaluate a company’s business model in terms of pricing policy, cost structure and operating efficiency, and shows how good it is at converting revenues into profits. Hence, a strong net profit margin is preferred by all classes of investors.
Even though readings for both the companies compare unfavorably with the industry’s figure of 10.7%, FTI Consulting has a lead with TTM net margin of 9.2%, compared with Huron’s 6%.
Comparing the companies with each other and the industry on the basis of price-to-forward 12 months’ earnings, which is a commonly used multiple for the consulting industry, we see that Huron’s 23.72X is higher than FTI Consulting’s 19.67X and the industry’s 22.85X.
So, FTI Consulting looks cheaper compared with Huron.
Our comparative analysis shows that FTI Consulting scores over Huron in terms of share price performance, current year expected earnings growth, surprise history and net margin. Despite a fast share price rally in the past year, FTI Consulting‘s valuation is cheap compared with Huron.
Other Stocks to Consider
Some other top-ranked stocks in the broader Zacks Business Services sector are Charles River Associates CRAI and Nielsen NLSN, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term expected earnings (three to five years) growth rate for Charles River and Nielsen is 13% and 12%, respectively.
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Nielsen Holdings Plc (NLSN): Free Stock Analysis Report
Huron Consulting Group Inc. (HURN): Free Stock Analysis Report
Charles River Associates (CRAI): Free Stock Analysis Report
FTI Consulting, Inc. (FCN): Free Stock Analysis Report
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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.