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FCN vs NCI: Which Consulting Services Stock is Better Placed?

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The consulting services industry is currently benefiting from improving economy, reduced tax rates, robust manufacturing and non-manufacturing activity. At the same time, it is bearing the brunt of higher talent costs due to a competitive talent market coupled with Trump’s stringent policies on immigration.

We believe that the macro drivers should offset operating challenges encountered by the industry in the long run.  In fact, looking at shareholder returns over the past year, it appears that the border economic recovery is enhancing investors’ confidence in the industry.

The Zacks Consulting Services Industry, which is a stock group within the broader Zacks Business Services Sector, has outpaced the S&P 500 and its own sector in the past year.

While the stocks in this industry have collectively gained 14.4%, the Zacks S&P 500 Composite and Zacks Business Services Sector have rallied 7.2% and 9%, respectively.

Given this backdrop, let’s do a comparative analysis of two consulting services stocks - FTI Consulting, Inc. (FCN - Free Report) and Navigant Consulting, Inc. (NCI - Free Report) . FTI Consulting has a market capitalization of $2.6 billion and Navigant’s market cap is $1 billion.

As both the stocks carry a Zacks Rank #3 (Hold), we are using certain other parameters to give investors a better insight.

Price Performance

So far this year, FTI Consulting has performed impressively on the bourse compared with Navigant and the industry. While FTI Consulting stock has surged 57.5%, Navigant and the industry rallied 14.5% and 6.3%, respectively.

Earnings Guidance

Earnings growth along with stock price gains is often an indication of a company’s solid prospects.

For 2018, FTI Consulting’s earnings are projected to grow 41% year over year, while that of Navigant are expected to decrease 60.7%.  Thus, FTI Consulting has an edge over Navigantin terms of yearly earnings growth.

Earnings Estimate Revisions

While FTI Consulting’s earnings estimate remained unchanged at $2.27 over the past 60 days, the same for Navigantmoved south 41% during the same time frame. This reflects increased pessimism surrounding the Navigant stock.

Net Margin

Net profit margin helps investors evaluate a company’s business model in terms of pricing policy, cost structure and operating efficiency, and shows how good it is at converting revenues into profits. Hence, a solid net profit margin is preferred by all classes of investors.

Even though readings for both the companies compare unfavorably with the industry’s figure of 10.2%, FTI Consulting has a lead with TTM net margin of 7.4% compared with Navigant’s 6.2%.

Valuation

Comparing the companies with each other and the industry on the basis of price to forward 12 months’ earnings, we see that Navigant’s 27.01X is ahead of FTI Consulting’s 20.39X and the industry’s 21.95X.

In terms of price to forward 12 months earnings growth, we see that Navigant’s 2X is again ahead of FTI Consulting’s 1.7X and the industry’s 1.91X.

So any way you cut it, Navigant is overvalued than FTI Consulting and the industry.

Bottom Line

Our comparative analysis shows that FTI Consulting scores over Navigant in terms of net margin and expected earnings growth for 2018. Its share price performance year to date has also been relatively better. Despite this share price rally, FTI Consulting’s valuation looks cheap compared to Navigant.

Stocks to Consider

Some better-ranked stocks in the broader Business Services sector include ICF International, Inc. (ICFI - Free Report) and Paychex, Inc. (PAYX - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term expected EPS (three to five years) growth rate for ICF International and Paychex is 10% and 8.4%, respectively.

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