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3 Stocks to Buy From the Booming Consulting Services Industry
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Economic strength, encouraging service activities, 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 FTI Consulting, Inc. (FCN - Free Report) , Huron Consulting Group Inc. (HURN - Free Report) and CRA International, Inc. (CRAI - Free Report) 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 focus within the industry is currently 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 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 Bureau of Economic Analysis, GDP grew at an annual rate of 2.5% in 2023 compared with 1.9% growth in 2022. 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 15 consecutive months by the end of the first quarter of 2024
Strong Demand Environment: The consulting services industry is one of those least affected by the pandemic and its after-effects. 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. 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 #69. This rank places it in the top 27% of 251 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
In the past year, the Consulting Services industry has underperformed the S&P 500 composite but outperformed the broader sector. The industry has gained 22.9% compared with the S&P 500 composite’s rise of 26.6% and the broader sector’s rally of 22.4%.
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 25.5X, above the S&P 500’s 20.79X and the sector’s 24.68X.
Over the past five years, the industry has traded as high as 37.08X and as low as 20.69X, with a median of 25.92X, as the charts below show.
Price to Forward 12 Months P/E Ratio
3 Consulting Services Stocks to Consider
CRA International: 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 the company meet varying client needs and offer other innovative services. Further, it gets to know about business strategies adopted across the world.
A multidisciplinary setup enables it to bring experts from all fields under one platform. Diversification in business helps reduce its dependence on any specific market, industry or geographic area. It also increases the company’s ability to adapt to changing conditions.
The Zacks Consensus Estimate for the company’s 2024 EPS suggests a 9.7% improvement from the year-ago reported number. The consensus estimate has increased by 5.8% in the past 60 days. CRAI currently sports a Zacks Rank #1 (Strong Buy). The stock has gained 72% in the past year.
Price and Consensus: CRAI
FTI Consulting: This business advisory services provider carries a Zacks Rank of 2 (Buy) at present.
The company’s potential to club diverse issues like damage assessment, accounting, economics, statistics, finance and industry under a single roof looks impressive. FTI Consulting continues to pursue opportunities in areas such as business transformation services, transaction advisory business, restructuring, retail, construction, data and analytics, cyber business, information governance and international arbitration. This makes it an excellent partner for global clients dealing with international arbitration issues, generating consistent revenue growth from the existing international operations.
The Zacks Consensus Estimate for the company’s 2024 EPS suggests a 6.6% improvement from the year-ago reported number. The Zacks Consensus Estimate for the 2024 EPS has moved nearly 1% north in the past 60 days. The stock has appreciated 25% in the past year.
Price and Consensus: FCN
Huron Consulting: This provider of consultancy services is currently witnessing strength across its healthcare and education segments. Sales remain healthy, driven by continued demand for Consulting and Managed Services and Digital capabilities.
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: HURN
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3 Stocks to Buy From the Booming Consulting Services Industry
Economic strength, encouraging service activities, 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 FTI Consulting, Inc. (FCN - Free Report) , Huron Consulting Group Inc. (HURN - Free Report) and CRA International, Inc. (CRAI - Free Report) 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 focus within the industry is currently 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 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 Bureau of Economic Analysis, GDP grew at an annual rate of 2.5% in 2023 compared with 1.9% growth in 2022. 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 15 consecutive months by the end of the first quarter of 2024
Strong Demand Environment: The consulting services industry is one of those least affected by the pandemic and its after-effects. 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. 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 #69. This rank places it in the top 27% of 251 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
In the past year, the Consulting Services industry has underperformed the S&P 500 composite but outperformed the broader sector. The industry has gained 22.9% compared with the S&P 500 composite’s rise of 26.6% and the broader sector’s rally of 22.4%.
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 25.5X, above the S&P 500’s 20.79X and the sector’s 24.68X.
Over the past five years, the industry has traded as high as 37.08X and as low as 20.69X, with a median of 25.92X, as the charts below show.
Price to Forward 12 Months P/E Ratio
3 Consulting Services Stocks to Consider
CRA International: 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 the company meet varying client needs and offer other innovative services. Further, it gets to know about business strategies adopted across the world.
A multidisciplinary setup enables it to bring experts from all fields under one platform. Diversification in business helps reduce its dependence on any specific market, industry or geographic area. It also increases the company’s ability to adapt to changing conditions.
The Zacks Consensus Estimate for the company’s 2024 EPS suggests a 9.7% improvement from the year-ago reported number. The consensus estimate has increased by 5.8% in the past 60 days. CRAI currently sports a Zacks Rank #1 (Strong Buy). The stock has gained 72% in the past year.
Price and Consensus: CRAI
FTI Consulting: This business advisory services provider carries a Zacks Rank of 2 (Buy) at present.
The company’s potential to club diverse issues like damage assessment, accounting, economics, statistics, finance and industry under a single roof looks impressive. FTI Consulting continues to pursue opportunities in areas such as business transformation services, transaction advisory business, restructuring, retail, construction, data and analytics, cyber business, information governance and international arbitration. This makes it an excellent partner for global clients dealing with international arbitration issues, generating consistent revenue growth from the existing international operations.
The Zacks Consensus Estimate for the company’s 2024 EPS suggests a 6.6% improvement from the year-ago reported number. The Zacks Consensus Estimate for the 2024 EPS has moved nearly 1% north in the past 60 days. The stock has appreciated 25% in the past year.
Price and Consensus: FCN
Huron Consulting: This provider of consultancy services is currently witnessing strength across its healthcare and education segments. Sales remain healthy, driven by continued demand for Consulting and Managed Services and Digital capabilities.
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: HURN