KFY - Embedded Expectations Analysis - 2020 07 21
Korn Ferry (KFY:USA) currently trades well below corporate averages relative to UAFRS-based (Uniform) earnings, with a 16.3x Uniform P/E, implying bearish expectations for the firm. However, management is confident about their balance sheet, positioning, and virtual delivery, suggesting this is overly pessimisticSpecifically, management is confident their balance sheet has high levels of cash and
liquidity, their operational guardrails will preserve their position of strength for recovery, and that they achieved an uptick in their Diversity & Inclusion (D&I) business as they took a proactive stance on social equality and race. They are also confident that the impact of their virtual delivery development will be shown in their Q1 2021
Given the firm's strong business profile and secular executive staffing tailwinds, and management confidence about business prospects, market expectations are far too bearish, suggesting upside is 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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