Encouraging service activities, along with increased adoption and the success of the work-from-home trend, are enabling the 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 Huron Consulting Group Inc. HURN, Charles River Associates CRAI and Franklin Covey Co. FC to sail through these testing times.
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 focus within the industry is currently on channelizing 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 the 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 a steady rate of 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 “advance” estimate released by the Bureau of Economic Analysis, GDP grew at an annual rate of 2.4% in the second quarter of 2023 compared with the 2% growth in the first quarter. Fed’s decision to pause interest rate hike in June after ten straight increases offered relief to the global economy. Economic activities in the non-manufacturing sector are in good shape. The Services PMI measured by the Institute for Supply Management has stayed above the 50% mark for the past seven months, indicating continued expansion.
Strong Demand Environment: The consulting services industry is one of those least affected by the pandemic. This is because even amid a volatile situation, organizations require extensive advice on how to protect their employees and stay closer to consumers and shareholders. Further, this industry is one of the earliest pioneers of remote working, which has now 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 #64. This rank places it in the top 26% of 246 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
Over the past year, the Consulting Services industry has outperformed the S&P 500 composite and the broader sector. The industry has gained 11.6% compared with the S&P 500 composite’s rise of 9.3%. The broader sector has declined 1.9% in the said time frame.
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 25.89X, above the S&P 500’s 19.08X and the sector’s 22.84X.
Over the past five years, the industry has traded as high as 26.29X and as low as 22.43X, with a median of 24.34X.
3 Consulting Services Stocks to Consider
We have presented three stocks that are well-positioned for near-term growth.
Huron Consulting: This provider of consultancy services is currently witnessing strength across its healthcare, education and commercial segments. Sales remain healthy, driven by continued demand for Consulting and Managed Services and Digital capabilities.
The Zacks Consensus Estimate for the company’s 2023 EPS suggests a 31.8% improvement from the year-ago reported number. The consensus estimate has increased 9.4% over the past 60 days. HURN currently carries a Zacks Rank #1 (Strong Buy). The stock has gained 20.7% in the past three months.
Franklin Covey: The company provides training and consulting services in the areas of execution, sales performance, productivity, customer loyalty, and educational improvement. It is currently witnessing strength in its direct offices, international licensees and education practices segments.
Franklin Covey remains focused on investing for the betterment of its solutions, increasing client retention and cash flow. The consensus estimate for EPS for the year has increased 16% over the past 60 days. FC currently carries a Zacks Rank #1. The stock has gained 19.5% in the past three months.
Charles River: This provider of economic, financial, and management consulting services has a diversified business, with service offerings across areas of functional expertise, client base and geographical regions.
Being proficient in multiple industries helps it meet varying client needs and offer innovative services. Further, the company gets to know about business strategies adopted across the world. Its multidisciplinary setup enables Charles River to bring experts from all fields under one platform. Diversification in business helps reduce dependence on any specific market, industry or geographic area. It also increases the company’s ability to adapt to changing conditions.
The consensus estimate for EPS for the year has increased 2% over the past 60 days. CRAI currently carries a Zacks Rank #2 (Buy). The stock has gained 14.1% in the past three months.
Huron Consulting Group Inc. (HURN): Free Stock Analysis Report
This article originally appeared on Zacks
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