FTI Upgraded to Outperform

We have upgraded our rating on Baltimore, Maryland-based FTI Consulting Inc. (FCN - Analyst Report), a global business advisory firm, to Outperform from Neutral.

The rating was upgraded as FTI’s corporate finance and restructuring service segment, which has been a significant drag on the company’s results since early 2010, has rebounded to post its first year-over-year increase in six quarters. EBITDA margin was also up 3.2% to 25.7%. The upside in results was driven by growth in the communications, media and entertainment and healthcare practices and higher contributions from Asia and EMEA. Utilization also improved to 75% from 71% in the year-ago quarter for the corporate finance and restructuring segment.

FTI Consulting’s recent third quarter 2011 earnings were also solid. The company reported earnings of 70 cents in the quarter, which surpassed the Zacks Consensus Estimate of 60 cents. Total revenue increased 20% year over year to $413.8 million, outpacing the Zacks Consensus Estimate of $384.0 million. Notably, reported revenue also surpassed the previous-quarter revenue, which was the highest in the company’s history.

The increase in revenue was driven by improvements across all divisions. Corporate finance and restructuring revenues inched up 0.5% year over year, Forensic and litigation consulting revenues grew 18.0%, Technology segment revenues jumped 33.0%, Economic Consulting revenues surged 61.0% year over year and Strategic Communications revenues improved 3.0% year over year.  Geographically, the company witnessed solid results in Asia-Pacific (up 46%) and Latin America (up 82%).

FTI is also benefiting from the addition of LECG professionals, which continues to enhance the company’s geographic reach and client base. The company expects the acquired practices to contribute 10 cents to 15 cents per share to earnings in 2011. Additionally, FTIremains focused on expansion through acquisitions.

Moreover, we also remain positive regarding the completion of one-brand strategy, which will enhance the company’s brand recognition, particularly in the new market. Furthermore, professionals of all the firms will be able to work as a team and provide superior services to clients all over the world.

Earnings Estimate Revisions: Overview

Following the third quarter results and stabilization in corporate finance and restructuring service segment, the Zacks Consensus Estimate for the company has increased, with the analysts remaining bullish on the stock. The earnings estimate details are discussed below.

Agreement of Estimate Revisions

Revision trends in the last 30 days drifted toward the positive side. For both fiscal 2011 and 2012, 9 out of the 10 analysts covering the stock raised their estimates while none moved in the opposite direction. However, in the last 7 days, analysts have not budged their estimates.

Magnitude of Estimate Revisions

The earnings estimates have climbed 8 cents to $2.47 for fiscal year 2011 and 9 cents to $2.88 for fiscal 2012, over the last 30 days.

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