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3 Top Stocks From the Prospering Consulting Services Industry
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Encouraging manufacturing and service activities, along with the increased adoption and success of the work-from-home trend, are enabling the Zacks Consulting Services industry to support the demand environment.
Service demand, innovation and acquisitions are helping Gartner, Inc. (IT - Free Report) , Accenture plc (ACN - Free Report) and CBIZ, Inc. (CBZ - Free Report) 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. Amid the pandemic, key 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 the 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 steady revenues, profit and cash-flow growth. Consequently, the trend has enabled most industry players to pay out stable dividends.
Pandemic Resiliency: Consulting services is one of the industries to have been least affected by the pandemic. This is because, amid a volatile situation, organizations required 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 a part of the new normal. The nature of work enables industry players to function efficiently through the increased use of technology.
Non-stop Service Demand: With both manufacturing and service activities in the pink, the demand for consulting services is rising steadily. Both the manufacturing PMI and the Services PMI, measured by the Institute for Supply Management, have stayed above the 50% mark for the past two years, indicating continued expansion.
Zacks Industry Rank Indicates Bright Prospects
The Consulting Services industry, housed within the broader Business Services sector, currently carries a Zacks Industry Rank #33. This rank places it in the top 13% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all 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.
Analysts covering the companies in this industry have been steadily pushing their estimates northward. Over the past year, the industry’s Zacks Consensus Estimate for earnings in 2022 has moved 10.5% north.
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 Outperforms the S&P 500 and the Sector
Over the past year, the Consulting Services industry has outperformed the S&P 500 composite and the broader sector.
While the industry has grown 7.6%, the S&P 500 composite and the broader sector declined 2.1% and 50.9%, respectively.
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 24.12X, above the S&P 500’s 17.73X but below the sector’s 24.89X.
Over the past five years, the industry has traded as high as 35.21X, as low as 18.82X and at a median of 23.49X, as the charts below show.
Gartner: The research giant has a large and diverse addressable market with low customer concentration, which helps it mitigate operating risks. The company offers timely, thought-provoking and comprehensive analysis that is known for its high quality, independence and objectivity. Its research reports have become indispensable tools for various companies across different sectors, strengthening its leading position in the market.
Consistency in rewarding shareholders through share buybacks not only instills investors’ confidence in the stock, but also positively impacts earnings per share. The company’s bottom line continued to benefit from improvement in operational efficiency.
The Zacks Consensus Estimate for 2022 EPS has increased 13.8% to $8.14 over the past 60 days. Gartner currently carries a Zacks Rank #1.
Price and Consensus: IT
Accenture: This professional services giant is benefiting from strength in its consulting and outsourcing businesses. On the outsourcing front, Accenture continues to see strong demand to assist clients with the operation and maintenance of digital-related services and cloud enablement. On the consulting front, the company experiences strong demand for digital, cloud and security-related services.
The company’s results surpassed the Zacks Consensus Estimate for both earnings and revenues in the past four quarters. The recently announced acquisition of Allgemeines Rechenzentrum GmbH (ARZ) is expected to expand Accenture’s cloud-based banking platform-as-a-service offerings across Europe.
The Zacks Consensus Estimate for revenues for the current year indicates a 22.9% increase from the year-ago reported number. The consensus estimate for earnings per share for the year suggests a 22.7% year-over-year improvement. The consensus EPS estimate for the year remained unchanged at $10.8 over the past 60 days. Accenture currently carries a Zacks Rank #2.
Price and Consensus: ACN
CBIZ: This provider of financial, insurance and advisory services has been benefiting from its acquisition spree and strength across all of its major service lines. CBIZ posted better-than-expected results in three of the past four quarters. Acquisitions contributed 20.7% to the company’s revenues in the first quarter of 2022.
The Zacks Consensus Estimate for revenues for the current year indicates a 20.8% year-over-year increase. The Zacks Consensus EPS estimate for the year suggests a 22.3% improvement from the year-ago reported number. The consensus EPS estimate for the year has increased 1.5% over the past 60 days.CBIZ currently carries a Zacks Rank #2.
Price and Consensus: CBZ
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3 Top Stocks From the Prospering Consulting Services Industry
Encouraging manufacturing and service activities, along with the increased adoption and success of the work-from-home trend, are enabling the Zacks Consulting Services industry to support the demand environment.
Service demand, innovation and acquisitions are helping Gartner, Inc. (IT - Free Report) , Accenture plc (ACN - Free Report) and CBIZ, Inc. (CBZ - Free Report) 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. Amid the pandemic, key 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 the 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 steady revenues, profit and cash-flow growth. Consequently, the trend has enabled most industry players to pay out stable dividends.
Pandemic Resiliency: Consulting services is one of the industries to have been least affected by the pandemic. This is because, amid a volatile situation, organizations required 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 a part of the new normal. The nature of work enables industry players to function efficiently through the increased use of technology.
Non-stop Service Demand: With both manufacturing and service activities in the pink, the demand for consulting services is rising steadily. Both the manufacturing PMI and the Services PMI, measured by the Institute for Supply Management, have stayed above the 50% mark for the past two years, indicating continued expansion.
Zacks Industry Rank Indicates Bright Prospects
The Consulting Services industry, housed within the broader Business Services sector, currently carries a Zacks Industry Rank #33. This rank places it in the top 13% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all 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.
Analysts covering the companies in this industry have been steadily pushing their estimates northward. Over the past year, the industry’s Zacks Consensus Estimate for earnings in 2022 has moved 10.5% north.
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 Outperforms the S&P 500 and the Sector
Over the past year, the Consulting Services industry has outperformed the S&P 500 composite and the broader sector.
While the industry has grown 7.6%, the S&P 500 composite and the broader sector declined 2.1% and 50.9%, respectively.
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 24.12X, above the S&P 500’s 17.73X but below the sector’s 24.89X.
Over the past five years, the industry has traded as high as 35.21X, as low as 18.82X and at a median of 23.49X, as the charts below show.
Price to Forward 12 Months P/E Ratio
Three Consulting Services Stocks to Bet On
We present three stocks that currently carry a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) and are well-positioned for near-term growth. You can see the complete list of today’s Zacks #1 Rank stocks here.
Gartner: The research giant has a large and diverse addressable market with low customer concentration, which helps it mitigate operating risks. The company offers timely, thought-provoking and comprehensive analysis that is known for its high quality, independence and objectivity. Its research reports have become indispensable tools for various companies across different sectors, strengthening its leading position in the market.
Consistency in rewarding shareholders through share buybacks not only instills investors’ confidence in the stock, but also positively impacts earnings per share. The company’s bottom line continued to benefit from improvement in operational efficiency.
The Zacks Consensus Estimate for 2022 EPS has increased 13.8% to $8.14 over the past 60 days. Gartner currently carries a Zacks Rank #1.
Price and Consensus: IT
Accenture: This professional services giant is benefiting from strength in its consulting and outsourcing businesses. On the outsourcing front, Accenture continues to see strong demand to assist clients with the operation and maintenance of digital-related services and cloud enablement. On the consulting front, the company experiences strong demand for digital, cloud and security-related services.
The company’s results surpassed the Zacks Consensus Estimate for both earnings and revenues in the past four quarters. The recently announced acquisition of Allgemeines Rechenzentrum GmbH (ARZ) is expected to expand Accenture’s cloud-based banking platform-as-a-service offerings across Europe.
The Zacks Consensus Estimate for revenues for the current year indicates a 22.9% increase from the year-ago reported number. The consensus estimate for earnings per share for the year suggests a 22.7% year-over-year improvement. The consensus EPS estimate for the year remained unchanged at $10.8 over the past 60 days. Accenture currently carries a Zacks Rank #2.
Price and Consensus: ACN
CBIZ: This provider of financial, insurance and advisory services has been benefiting from its acquisition spree and strength across all of its major service lines. CBIZ posted better-than-expected results in three of the past four quarters. Acquisitions contributed 20.7% to the company’s revenues in the first quarter of 2022.
The Zacks Consensus Estimate for revenues for the current year indicates a 20.8% year-over-year increase. The Zacks Consensus EPS estimate for the year suggests a 22.3% improvement from the year-ago reported number. The consensus EPS estimate for the year has increased 1.5% over the past 60 days.CBIZ currently carries a Zacks Rank #2.
Price and Consensus: CBZ