AI Transition Risks And Slower Consulting Shift Will Eventually Support A More Resilient Business

Catalysts

About Hackett Group

The Hackett Group provides consulting, benchmarking and GenAI-enabled platforms that help enterprises improve processes and large-scale technology transformations.

What are the underlying business or industry changes driving this perspective?

• Although Hackett now has a complete suite of GenAI-enabled platforms across AI XPLR, XT, AIX and Ask Hackett, the shift from traditional consulting to outcome based, platform supported delivery could prove slower and more resource intensive than planned. This may limit the pace of revenue mix improvement and delay the impact on margins.
• Although the company is working toward a global go to market agreement with a large technology and consulting partner and separate pilots with providers like ServiceNow, execution risk around these alliances is high. Slower than expected client adoption through partners could constrain the anticipated uplift in license revenue and associated earnings.
• While management describes a very large long term expansion in enterprise automation and cognitive workflows, client confusion around GenAI use cases and competing build tools from hyperscalers may cause projects to be deferred or downsized. This would weigh on consulting revenue growth and limit operating leverage.
• Although the SAP Solutions segment is currently benefiting from S/4HANA cloud migration activity and software related sales, any moderation in migration intensity or increased competition from larger integrators could reduce project volume and pricing power. This would have a direct impact on total company revenue and gross margin.
• While AI driven productivity gains in XT and AIX are starting to support headcount rationalization and outcome based pricing, misalignment between reduced staffing needs and fixed people related costs or severance could offset efficiency gains in the near term. This could pressure net margins and EBITDA even as new platforms scale.

Assumptions

This narrative explores a more pessimistic perspective on Hackett Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Hackett Group's revenue will grow by 1.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.2% today to 16.2% in 3 years time.
• The bearish analysts expect earnings to reach $52.3 million (and earnings per share of $2.02) by about February 2029, up from $12.9 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $58.9 million.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 10.3x on those 2029 earnings, down from 29.5x today. This future PE is lower than the current PE for the US IT industry at 22.9x.
• The bearish analysts expect the number of shares outstanding to decline by 3.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.44%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The Global S&BT segment generated revenues before reimbursements of US$38.6 million in Q4 2025, which was an 11% decline compared to the same period in the prior year, and the Oracle Solutions segment reported US$14 million with a 20% decline. If these core consulting and Oracle businesses continue to contract while AI offerings scale up more slowly than expected, total revenue and earnings could come under pressure.
• Management is incurring ongoing AI transition charges related to headcount reductions and expects that these may continue during 2026, and adjusted EBITDA margin in Q4 2025 was 21.3% compared to 25.2% in the prior year. If restructuring costs and productivity gains fail to align, net margins and earnings could remain compressed for longer than investors expect.
• The shift from rate based consulting to outcome based, platform supported delivery, and the move to licensing AI XPLR and related platforms, depends on clients accepting new pricing models and paying for licenses after initial projects. If clients push back on outcome fees or choose to use cheaper build tools from large AI providers instead, this could limit recurring revenue growth and weigh on future earnings.
• The company is emphasizing partnerships, including a prospective global go to market collaboration with a large technology and consulting company and a pilot with ServiceNow, but these agreements are not yet fully in place or proven at scale. If partner led channels ramp slowly or fail to produce sizeable deal flow, the expected uplift in license and services revenue may not materialize and revenue growth could fall short.
• SAP Solutions revenue before reimbursements was US$22.2 million in Q4 2025, a 32% increase versus the prior year driven by S/4HANA cloud migration and software related sales, yet management also highlights demand disruption and client confusion around GenAI priorities. If SAP migration activity cools while AI driven projects remain delayed or smaller than anticipated, the company could lose an important growth offset and face pressure on total revenue and adjusted net income.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Hackett Group is $17.0, which represents up to two standard deviations below the consensus price target of $23.67. This valuation is based on what can be assumed as the expectations of Hackett Group's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $30.0, and the most bearish reporting a price target of just $17.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $322.3 million, earnings will come to $52.3 million, and it would be trading on a PE ratio of 10.3x, assuming you use a discount rate of 9.4%.
  
• Given the current share price of $15.22, the analyst price target of $17.0 is 10.5% 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.