Image: BigstockEconomic strength, encouraging service activities, increased adoption, and the success of the work-from-home trend have enabled Zacks Consulting Services industry players to support the demand environment.Driven by these positives, investors interested in the industry may do well to keep stocks like Booz Allen Hamilton Holding Corporation (BAH – Free Report), FTI Consulting, Inc. (FCN – Free Report), and Charles River Associates International (CRAI – Free Report) in a portfolio.
About the Consulting Services 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.The industry focuses on channeling 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 opportunities that an 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.Economic recovery: The sector is a major beneficiary of the broader economy and service activities. According to the “third” estimate released by the Bureau of Economic Analysis, GDP grew at an annual rate of 3.1% in the third quarter of 2024 compared with 3% growth in the second quarter.Economic activities in the non-manufacturing sector are in good shape. As of September, the Services PMI, measured by the Institute for Supply Management, had stayed above the 50% mark for the 52nd time in 55 months since recovery from the pandemic.Strong demand environment: The consulting services industry is one of those least affected by the pandemic and its after-effects. This is because even in a volatile situation, organizations require extensive advice on protecting their employees and staying closer to consumers and shareholders.This industry is one of the earliest pioneers of remote working that has become part of the new normal. The nature of work enables industry players to function efficiently through the increased use of technology.
The Zacks Industry Rank Indicates Bright Prospects
The Consulting Services industry, housed within the broader Business Services sector, carries a Zacks Industry Rank #77. This rank places it in the top 31% of 250 Zacks industries.The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the 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.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 valuation.
The Consulting Services Industry’s Stock Price Performance
The Consulting Services industry has underperformed the S&P 500 composite and the broader sector in the past year. The industry has gained 5.5% compared with the S&P 500 composite’s rise of 24.9% and the broader sector’s rally of 21.2%.
One-Year Stock Price Performance
Image Source: Zacks Investment Research
The 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 can see that the industry is trading at 26.58X, which is above the S&P 500’s 22.13X and the sector’s 24.54X.Over the past five years, the industry has traded as high as 31.12X, as low as 26.58X, and with a median of 26.5X, as the charts below show.
Price to Forward 12-Month P/E Ratio
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
3 Consulting Services Stocks to Consider
Now, here is a brief look at the above-mentioned stocks that may be worth consideration.
Booz Allen
This company offers management and technology consulting, analytics, engineering, digital solutions, mission operations, and cybersecurity services to governments, businesses, and non-profit organizations both in the United States and internationally.Decades of delivering mission-critical solutions have cemented Booz Allen’s reputation as a reliable contractor. Government agencies, particularly in defense and intelligence, require high levels of trust and confidentiality, areas where Booz Allen excels. This trust helps the company secure long-term, recurring contracts, allowing it to focus on innovation and efficiency without constantly seeking new clients.Multi-year contracts provide a steady revenue stream and reduce the company’s exposure to market volatility. Government contracts are often renewed due to the sensitive nature of the services provided, such as defense and cybersecurity consulting, ensuring a consistent pipeline of business. Driven by these positives, Booz Allen’s revenues have witnessed a compound annual growth rate of 7.4% from fiscal 2020 to fiscal 2024.Booz Allen has strategically improved operational efficiency, thanks to its focus on cost control, efficient project management, and adjustment of its workforce based on demand, especially in managing government contracts and providing mission-critical services like cybersecurity, artificial intelligence (AI), and defense consulting. The company has also invested in digital transformation initiatives and data-driven solutions to enhance client offerings and streamline internal operations.Booz Allen’s adjusted operating income surged 18.4% year-over-year in fiscal 2024, with adjusted operating income margin expanding around 30 basis points. We expect adjusted operating income to increase 10% in fiscal 2025, with adjusted operating income margin expanding around 10%.The Zacks Consensus Estimate for the company’s 2024 EPS has increased 0.6% in the past 60 days to $6.25. The stock currently sports a Zacks Rank #1 (Strong Buy) rating.
Stock Price and Consensus: Booz Allen
Image Source: Zacks Investment Research
Charles River Associates International
This next company offers economic, financial, and management consulting services worldwide.Charles River Associates, as a relatively small player in the consulting and research services sector, presents a compelling narrative when evaluating its market position and growth potential. The company has carved out a niche with its strong reputation for delivering high-quality, analytical, and strategic consulting services across diverse industries.Despite its size, the company benefits from the growing demand for specialized advisory services in an increasingly complex global marketplace. Its ability to attract top talent, combined with a focus on innovation and client-centered solutions, positions it for significant growth.As industries grapple with rapid technological advancements, regulatory complexities, and evolving market dynamics, Charles River Associates’ expertise could see rising demand, allowing it to capture a larger share of its addressable market. Additionally, its proven track record of delivering value to clients may help it sustain long-term partnerships, further bolstering its growth trajectory.Given the nature of the business, the company’s success depends on the talent that it can acquire and retain. Charles River Associates has built and sustained a strong reputation for delivering high-quality consulting services driven by its highly qualified professionals. Nearly 75% of its senior consultants hold advanced degrees, including doctorates, and are recognized leaders in their fields.In 2023, Charles River Associates employed 1,004 consulting staff, comprising 156 officers, 527 senior staff, and 321 junior staff. Additionally, the company often collaborates with independent experts from top academic institutions, enhancing its ability to address complex client needs.These experts also help generate new business opportunities and connect the company to other leading professionals in academia and industry. Access to a global talent pool enhances the company’s ability to solve complex issues, making it a preferred choice for multinational clients. Charles River Associates’ ability to collaborate across borders and acquire knowledge in varied industries ensures it remains competitive. Also, the company’s revenue per employee has witnessed a compound annual growth rate (CAGR) of 1.3% from 2019 to 2023.The Zacks Consensus Estimate for the company’s 2024 EPS has increased 1% in the past 60 days to $7.15. The stock currently carries a Zacks Rank #2 (Buy) rating.
Stock Price and Consensus: Charles River Associates International
Image Source: Zacks Investment Research
FTI Consulting
This final company offers business advisory services to manage change, mitigate risk, and resolve disputes globally.FTI Consulting’s diversified offerings and international operations strengthen top-line growth prospects. In 2023, the company earned almost 37% of its revenues from its international businesses.The broad range of practices and services, diversified revenue streams, specialized industry expertise, and global reach differentiate FTI Consulting from its competitors. This diversification assists the company in mitigating the impacts of economic cycles, crises, events, and changes in a particular practice, industry, or country. Also, FTI Consulting’s revenues have witnessed a compound annual growth rate of 8.2% from 2019 to 2023.FTI Consulting’s focus on quality service through a skilled and diverse workforce enhances its appeal to investors. By investing in employee development and competitive compensation packages, the company retains top talent, driving performance and client satisfaction. This commitment to expertise and community support boosts its corporate image, potentially leading to greater client engagement and revenue growth.Additionally, as FTI Consulting continues to excel in its services, it becomes more attractive to investors who favor companies with strong operational foundations and promising growth prospects, ultimately supporting an increase in the stock’s value. The company’s 10% revenue per employee growth in 2023 and a 0.7% CAGR from 2019-2024 reflect consistent workforce productivity, efficiency, and a commitment to maintaining high-quality talent standards.The Zacks Consensus Estimate for the company’s 2024 EPS has remained unchanged in the past 60 days, at $8.1. The stock currently carries a Zacks Rank #3 (Hold) rating.
Stock Price and Consensus: FTI Consulting
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