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Consulting Services' Outlook Bright on Strong Economic Growth
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The companies grouped under the Consulting Services category offer professional advice in management, IT, human resources, environmental regulations, logistics and marketing, real estate, serving multiple end markets. The United States and Europe are the largest markets for consulting services.
Here are the industry’s three major themes.
It is a multi-billion-dollar space marked by consistent revenue, profit and cash flow growth. This has enabled most industry players to steadily increase dividends.
The industry’s near-term prospects look bright as it benefits from economic strength that has kept both manufacturing and non-manufacturing activities in good shape. July marked the 35th month of consecutive manufacturing growth with the Purchasing Managers' Index, measured by Institute of Supply Management (ISM), touching 51.2%. Also, July was the 114th month of consecutive growth in non-manufacturing activities with ISM-measured Non-Manufacturing Index touching 53.7%. 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.
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.
Zacks Industry Rank Indicates Encouraging Prospects
The Zacks Consulting Services industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #26. This rank places it in the top 10% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term growth prospects as mentioned earlier. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% is a result of the positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimate for the current year has increased by 2.2%.
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 valuation picture.
Industry Outperforms S&P 500 and Sector
The Zacks Consulting Services industry has performed better than the broader Zacks Business Services Sector as well as the Zacks S&P 500 composite over the past year.
It has gained 14.6% over this period compared with the broader sector and the S&P 500’s increase of 10.5% and 1.2%, respectively.
One-Year Price Performance
Industry’s Current Valuation
On the basis of 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 22.66X, above the S&P 500’s 16.89X but below the sector’s 24.11X.
Over the past five years, the industry has traded as high as 23.45X, as low as 17.45X and at the median of 20.32X, as the charts below show.
Price to Forward 12 Months
Bottom Line
The industry is a great area to invest in right now, at least as long as the economy thrives. In fact, long-term prospects are also encouraging as major growth drivers are likely to gain traction in the foreseeable future.
So, while the more cautious of us might wait for a better entry point, here are some stock picks for the rest.
Exponent, Inc. (EXPO - Free Report) : The stock of this CA-based science and engineering consulting company has gained 32.4% over the past year. The Zacks Consensus Estimate for current-year EPS has been revised 3.5% upward in the past 60 days. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: EXPO
FTI Consulting (FCN - Free Report) : The stock of this WA-based business advisory services provider gained 27% over the past year. The Zacks Consensus Estimate for current-year EPS has been revised 27.8% upward in the past 60 days. The stock carries a Zacks Rank #1.
Price and Consensus: FCN
Huron Consulting Group (HURN - Free Report) : The stock of this IL-based a professional services firm has gained 20.9% in the past year. The Zacks Consensus Estimate for current-year EPS has been revised 3.4% upward in the past 60 days. The stock carries a Zacks Rank #2 (Buy).
Price and Consensus: HURN
Accenture (ACN - Free Report) : The stock of this Dublin, Ireland-based consulting, technology, and outsourcing services provider has gained 15.6% over the past year. The Zacks Consensus Estimate for current-year EPS has been revised 0.5% upward in the past 60 days. The stock carries a Zacks Rank #2.
Price and Consensus: ACN
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Consulting Services' Outlook Bright on Strong Economic Growth
The companies grouped under the Consulting Services category offer professional advice in management, IT, human resources, environmental regulations, logistics and marketing, real estate, serving multiple end markets. The United States and Europe are the largest markets for consulting services.
Here are the industry’s three major themes.
Zacks Industry Rank Indicates Encouraging Prospects
The Zacks Consulting Services industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #26. This rank places it in the top 10% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term growth prospects as mentioned earlier. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% is a result of the positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimate for the current year has increased by 2.2%.
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 valuation picture.
Industry Outperforms S&P 500 and Sector
The Zacks Consulting Services industry has performed better than the broader Zacks Business Services Sector as well as the Zacks S&P 500 composite over the past year.
It has gained 14.6% over this period compared with the broader sector and the S&P 500’s increase of 10.5% and 1.2%, respectively.
One-Year Price Performance
Industry’s Current Valuation
On the basis of 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 22.66X, above the S&P 500’s 16.89X but below the sector’s 24.11X.
Over the past five years, the industry has traded as high as 23.45X, as low as 17.45X and at the median of 20.32X, as the charts below show.
Price to Forward 12 Months
Bottom Line
The industry is a great area to invest in right now, at least as long as the economy thrives. In fact, long-term prospects are also encouraging as major growth drivers are likely to gain traction in the foreseeable future.
So, while the more cautious of us might wait for a better entry point, here are some stock picks for the rest.
Exponent, Inc. (EXPO - Free Report) : The stock of this CA-based science and engineering consulting company has gained 32.4% over the past year. The Zacks Consensus Estimate for current-year EPS has been revised 3.5% upward in the past 60 days. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: EXPO
FTI Consulting (FCN - Free Report) : The stock of this WA-based business advisory services provider gained 27% over the past year. The Zacks Consensus Estimate for current-year EPS has been revised 27.8% upward in the past 60 days. The stock carries a Zacks Rank #1.
Price and Consensus: FCN
Huron Consulting Group (HURN - Free Report) : The stock of this IL-based a professional services firm has gained 20.9% in the past year. The Zacks Consensus Estimate for current-year EPS has been revised 3.4% upward in the past 60 days. The stock carries a Zacks Rank #2 (Buy).
Price and Consensus: HURN
Accenture (ACN - Free Report) : The stock of this Dublin, Ireland-based consulting, technology, and outsourcing services provider has gained 15.6% over the past year. The Zacks Consensus Estimate for current-year EPS has been revised 0.5% upward in the past 60 days. The stock carries a Zacks Rank #2.
Price and Consensus: ACN
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>