Investing In Talent And AI Will Strengthen Future Competitiveness

Key Takeaways

• Strategic investments in top-tier hiring and AI focus aim to boost revenue, efficiency, and enhance client service.
  
• Diversification across segments and a strong balance sheet drive earnings stability, potential acquisitions, and shareholder value growth.
  
• Declines in key segments and rising expenses outpaced revenue growth, pressuring earnings and indicating potential ongoing challenges.

Catalysts

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

• The company's strategic investments in hiring top-tier senior professionals and expanding teams indicate a focus on capturing market share and preparing for future demand, which could boost future revenue growth.
  
• The introduction of over 320 new professionals from campuses, the largest class ever, suggests that FTI Consulting is positioning itself for enhanced capacity and long-term revenue growth by building a robust talent pipeline.
  
• Ongoing investments in AI capabilities and other technology developments are intended to drive future efficiencies and client service enhancements, potentially improving net margins and revenue.
  
• FTI Consulting's diversification across different business segments, such as restructuring and economic consulting, allows it to capitalize on various market cycles and economic conditions, aiming to stabilize and grow earnings.
  
• The company's strong balance sheet and the ability to engage in share buybacks or make strategic acquisitions represent potential catalysts for earnings per share (EPS) growth, enhancing shareholder value.

FTI Consulting Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming FTI Consulting's revenue will grow by 4.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.4% today to 8.5% in 3 years time.
• Analysts expect earnings to reach $361.9 million (and earnings per share of $10.22) by about December 2027, up from $312.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.3x on those 2027 earnings, up from 22.0x today. This future PE is greater than the current PE for the US Professional Services industry at 23.8x.
• Analysts expect the number of shares outstanding to grow by 0.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.31%, as per the Simply Wall St company report.

FTI Consulting Future Earnings Per Share Growth

Risks

• Revenue growth was weaker than expected, largely due to market forces and internal delays, impacting overall revenue and earnings.
  
• Increased direct costs and SG&A expenses outpaced revenue growth, leading to declining adjusted EBITDA and net margins.
  
• Foreign exchange losses and a higher effective tax rate further dampened earnings, reducing net income.
  
• Declines in key segments such as Corporate Finance & Restructuring and Strategic Communications indicate potential ongoing challenges in revenue generation.
  
• Anticipated slower revenue momentum and potential headwinds from investment costs could continue putting pressure on earnings per share.

Valuation

• The analysts have a consensus price target of $243.5 for FTI Consulting based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $275.0, and the most bearish reporting a price target of just $212.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $4.3 billion, earnings will come to $361.9 million, and it would be trading on a PE ratio of 28.3x, assuming you use a discount rate of 6.3%.
• Given the current share price of $194.09, the analyst's price target of $243.5 is 20.3% 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.