International Expansion And AI Investments Will Drive Future Opportunities

Key Takeaways

• Strategic hiring and international market growth in Europe and Australia are key to enhancing FTI's service offerings and client reach.
  
• Investments in HR, AI, and controlled costs support improved margins and operational efficiencies while enabling share buybacks and potential acquisitions.
  
• Staff departures, economic pressures, and rising costs threaten FTI Consulting's revenue and profitability, with potential ongoing challenges into 2025.

Catalysts

Provides business advisory services to manage change, mitigate risk, and resolve disputes worldwide.

• Despite a challenging demand backdrop for consulting services, FTI is experiencing a high level of interest from top talent, leading to strategic hiring. This investment in personnel is expected to enhance future revenue growth by expanding service offerings and client reach.
  
• The company has taken targeted headcount reductions in areas with low utilization, estimated to save approximately $70 million in 2025. These cost-saving measures should help improve net margins and overall profitability in the long run.
  
• Strategic growth in international markets, particularly in regions like Australia, Germany, Spain, and France, is expected to boost revenue as these geographies experience increased demand for consulting services.
  
• FTI is actively investing in upgrading HR systems and enhancing AI capabilities, which could drive operational efficiencies and ultimately support higher earnings by reducing costs and improving service delivery.
  
• With an enviable balance sheet and no debt, FTI has significant flexibility to enhance shareholder value through share buybacks and strategic acquisitions, which can contribute to earnings per share growth over time.

FTI Consulting Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming FTI Consulting's revenue will grow by 4.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.6% today to 8.1% in 3 years time.
• Analysts expect earnings to reach $342.0 million (and earnings per share of $9.26) by about April 2028, up from $280.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.0x on those 2028 earnings, up from 19.3x today. This future PE is greater than the current PE for the US Professional Services industry at 19.8x.
• Analysts expect the number of shares outstanding to grow by 0.67% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.44%, as per the Simply Wall St company report.

FTI Consulting Future Earnings Per Share Growth

Risks

• The company is facing headwinds from potential senior and junior staff departures in the U.S. competition segment of the Compass Lexecon subsidiary, which could result in reduced revenue and profitability, impacting overall earnings.
  
• There has been a slowdown in revenue growth due to weaker performance and declining sales in the second half of 2024, which may persist and affect the revenue trajectory into 2025.
  
• The company will cycle comparisons from an exceptionally low tax rate in 2024 due to nonrecurring factors, which may lead to tougher year-on-year comparisons and impact net margins.
  
• Higher direct costs and SG&A expenses, despite revenue growth, have led to a decline in adjusted EBITDA for 2024, reflecting pressure on net margins.
  
• There are ongoing economic pressures in certain markets, such as the U.K., and sector-specific slowdowns, particularly in M&A-related activities, which may impact revenue growth across various segments.

Valuation

• The analysts have a consensus price target of $173.5 for FTI Consulting based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.2 billion, earnings will come to $342.0 million, and it would be trading on a PE ratio of 22.0x, assuming you use a discount rate of 6.4%.
• Given the current share price of $152.87, the analyst price target of $173.5 is 11.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.