KFY - Embedded Expectations Analysis - 2020 03 30
Korn Ferry (KFY:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 9.4x Uniform P/E, implying bearish expectations for the firm. Although management's concerns about growth, margin, and COVID-19 suggest the potential for near-term headwinds, given the firm's strong business profile and secular tailwinds, longer-term equity upside remains warranted for KFYSpecifically, management may lack confidence in their ability to sustain monthly growth in their leadership development and other new business, maintain their operating EBITDA margin, and realize long-term margin benefits from their digital segment. Moreover, they may be concerned about the impact of COVID-19 on their operations, declines in consultant travel, and the sustainability of subscription and licensing revenues. They may also lack confidence in their ability to pivot their business towards virtual alternatives, maintain a consistent capital allocation strategy, and assist clients in determining management compensations. Furthermore, they may be concerned about their talent hub and recent KF Digital acquisitions
Although management's concerns about growth, margins, and COVID-19 suggest the potential for near-term headwinds, given the firm's strong business profile and secular executive staffing tailwinds, market expectations are far too bearish, suggesting longer-term equity upside remains warranted for KFY
Korn Ferry is an organizational consulting firm. The company is engaged in the business of giving client awareness to its range of talent management solutions. The company's segments include: Executive Search, in which the company's services are used to fill executive-level positions, such as board directors, chief executive officers, chief operating officers, chief information officers, chief human resource officers and other senior executive officers; Advisory, which helps clients design their organization and shows them the way to compensate, develop and motivate their people; and RPO and Professional Search, which combines people, process personnel and intellectual property enabled technology.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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