We recently upgraded our rating on FTI Consulting Inc. (FCN), a provider of specialized consulting services across 35 U.S. cities and 21 foreign countries, to Neutral from Underperform. The rating was upgraded on the back of first-quarter 2010 earnings results, which were modestly ahead of the Zacks Consensus Estimate. This was due to a substantial growth in economic consulting and strong restructuring activities along with improvement in litigation-driven activities, which boosted merger and acquisition transactions in the quarter.
We believe that FTI Consulting is positioned to benefit from increased regulatory scrutiny, a proliferation of corporate litigation, and a lingering impact of the recession, which afford the management teams of public companies with little scope to deal with a litany of complex issues.
We expect the company’s Economic Consulting segment to the major driver in 2010 with increased hires and a new presence in Europe.
However, we still remain cautious on the stock as Corporate Finance and Technology segments remain a drag, owing to a softer trend in bankruptcy work and a slowdown in larger cases. While demand remains solid within most of the company’s business practices, the company has been slow in improving profitability. We note that FTI Consulting remains extremely aggressive in its hiring practices, leading to a growth in human capital outlays.
First Quarter Results Beat Estimates
FTI Consulting’s first-quarter adjusted operating earnings of 67 cents per share were ahead of the Zacks Consensus Estimate of 61 cents per share.
Non-GAAP EBITDA in the quarter was up 2.6% year over year at $75.9 million, while revenue increased slightly by 0.6% year over year to $350.0 million.
Outlook for 2010
Management expects fiscal 2010 revenue to come in the range of $1.47 to $1.57 billion, while operating earnings per share are estimated to be between $3.00 and $3.25.
Estimates Increased
After the first quarter results, the analysts raised their full-year fiscal 2010 estimates to $3.05 per share from $3.02 just 60 days ago, based on improving growth prospects and fundamentals of FTI consulting.
Value Fundamentals
FTI Consulting is a fairly valued stock with a price-to-book ratio of 1.7, well under the industry average of 3.8. The company is trading at 14.2X our 2010 earnings estimate, a 14.0% discount to the industry average. However, its trailing 12-months ROE of 12.1x is lagging behind the industry average of 28.4x.
The quantitative Zacks Rank for FTI Consulting is currently “3″, indicating no directional pressure on the shares over the near term.
FTI Consulting is upgraded to Neutral based on its expectation to benefit from the recent pick up in financial regulatory investigation, active M&A environment, continued gain in market share, tapping of the Asia-Pacific market, ongoing Euro-zone debt crisis along with potential incremental opportunities from the Gulf oil spill leading to an increase in litigation activity. Moreover, the company has an experienced set of personnel who act as key catalysts in wining major assignments.
Read the full analyst report on “FCN”
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