The encouragement of manufacturing and service businesses, along with the increased adoption and success of the work-from-home trend, allows the Zacks Consulting services industry to sustain the demand environment. Gradual economic recovery, supported by an increase in vaccination campaigns, is driving demand.
Service demand, innovation and acquisitions help Accenture plc ACN, CBIZ, Inc. CBZ and Franklin Covey Co. FC sails through these test times.
About the industry
Companies grouped under the Consulting Services category offer professional consulting in management, IT, human resources, environmental regulations, logistics and marketing, real estate, serving multiple end markets. The space includes big names such as Accenture and Gartner THIS. Amid the pandemic, the main focus within the industry right now is to channel money and effort into more efficient operational components, such as technology, digital transformation, and data-driven decision-making. . To position themselves appropriately in the post-pandemic era and better utilize the opportunities that economic recovery will bring, service providers are redoubling efforts to formulate and reassess strategic initiatives, identify sources of demand and target markets. final.
What is shaping the future of the consulting services industry?
Exponential growth: This multi-billion dollar industry has grown exponentially since the 2008 financial crisis, enjoying a steady rate of growth in revenues, profits and cash flow. Therefore, the trend has allowed most players in the sector to pay stable dividends.
Pandemic Resilience: Consulting services are one of the industries least affected by the pandemic. Indeed, in such a volatile situation, organizations have increased their search for advice that can help them protect their employees and stay closer to consumers and shareholders. Moreover, this industry is one of the early pioneers of remote working which has now become an integral part of the new normal. The nature of the work allows industry players to operate efficiently through the increased use of technology.
Non-stop service request: The sector is one of the main beneficiaries of the economy, which is gradually strengthening. A steady recovery is evident from the GDP figure for the fourth quarter of 2021, which according to the “advance” estimate published by the Bureau of Economic Analysis, increased at an annual rate of 6.9% compared to the 2.3% increase in the third quarter. With manufacturing and service activities in the pink, demand for services is steadily increasing. Although economic activity in the manufacturing sector fell 2.4% from November to December, with the manufacturing PMI measured by the Institute for Supply Management (ISM) reaching 58.7%, the reading above 50% marked the 19th consecutive month of expansion. Non-manufacturing activities fell 7.1% in December from November’s all-time high of 69.1, with the services PMI index measured by the ISM reaching 62%. With a reading above 50%, this is the 19th straight month of service business expansion.
Zacks’ Industry Rankings Indicate Bright Prospects
The consulting services industry, which is part of the whole Business services industry, currently holds a #38 Zacks Industry ranking. This ranking places it in the top 15% of over 250 Zacks industries.
That of the group Zacks Industry Ranking, which is essentially the average of the Zacks ranking of all member stocks, indicates strong near-term growth prospects. Our research shows that the top 50% of industries ranked by Zacks outperform the bottom 50% by a factor of more than 2 to 1.
Analysts covering companies in this industry have regularly pushed their estimates north. Over the past year, the industry’s consensus earnings estimate for 2022 has moved 10.5% north.
Before outlining a few stocks you might consider for your portfolio, let’s take a look at the industry’s recent stock performance and current valuation.
Industry outperforms S&P 500 and sector
Over the past year, the advisory services sector has outperformed the S&P 500 composite and the sector in general.
While the industry rebounded 37.3%, the S&P 500 composite gained 17.5%. The broader sector shrank by 41.8% during the said period.
Year-over-year price performance
Current industry assessment
Based on the forward 12-month price-to-earnings (P/E) ratio, which is a multiple commonly used to value advisory services companies, we see that the sector is currently trading at 28.05X, above 19.71X of the S&P 500. and 26.41X of the sector.
Over the past five years, the industry has traded as low as 35.21X, as low as 18.82X and at a median of 23.09X, as seen in the charts below.
12 month price/earnings ratio
3 advisory services stocks to bet on
We feature three stocks that currently carry a Zacks Rank #1 (Strong Buy) and are well positioned for near-term growth.
Accenture: Shares of the professional services giant have gained 33.6% over the past year, driven by continued strength in its consulting and outsourcing business. On the outsourcing front, Accenture continues to see strong demand to help clients operate and maintain services related to digital and cloud enablement. On the consulting front, the company is seeing strong demand for digital, cloud and security-related services.
Investors seem to have remained enthusiastic about Accenture’s acquisition frenzy and its strong quarterly results. The company’s results have exceeded Zacks’ consensus estimate for earnings and revenue for the past four quarters. The recent acquisition of Tambourine is expected to energize Accenture’s suite of sales and commerce transformation services, from product and platform engineering to omnichannel delivery of commerce experiences.
The Zacks consensus estimate for current-year revenue shows an 18.4% increase from the number reported a year ago. The Zacks Consensus EPS estimate for the year suggests a 19.8% year-over-year improvement. The consensus EPS estimate for the year rose 4.2% over the past 60 days.
Pricing and Consensus: ACN
CBIZ: This provider of financial services, insurance and consulting has seen its share price jump 42.6% in the past year on investor optimism about its acquisition spree and its impressive quarterly results. The company saw strength in all of its major service lines.
CBIZ has posted better than expected results over the past four quarters. Acquisitions made in 2020 and the first nine months of 2021 contributed 7.3% to the company’s revenue in the first three quarters of 2021.
The Zacks consensus estimate for current year revenue points to a 14.7% year-over-year increase. The Zacks Consensus EPS estimate for the year suggests a 23.2% improvement over the number reported a year ago. The consensus EPS estimate for the year remained unchanged at $1.75 over the past 60 days.
Pricing and Consensus: CBZ
Franklin Covey: Shares of this training and advisory services provider have charted a solid trajectory over the past year, gaining 82.4% on continued momentum in its subscription business and strength in its Value proposition. The quality of content, flexibility in delivering content and services across all modalities and the global sales and delivery network are considered the company’s main strengths.
The Zacks consensus estimate for EPS for the current year is up 22.6% over the past 60 days.
Pricing and Consensus: FC
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.