KFY - Embedded Expectations Analysis - 2020 10 22
Korn Ferry (KFY:USA) currently trades above corporate averages relative to UAFRS-based (Uniform) earnings, with a 27.8x Uniform P/E. However, even at these levels, the market is pricing in bearish expectations for the firm. Although management's concerns about revenues, new business trends, and the RPO business suggest the potential for near-term headwinds, longer-term equity upside remains warrantedSpecifically, management may lack confidence in their ability to mitigate fee revenue declines, sustain improvements in digital business engagement, and return to pre-pandemic margin levels. Furthermore, they may lack confidence in their ability to maintain growth in new business clients and continue delivering quality renewals in the recruitment process outsourcing (RPO) business. In addition, management may be concerned about possible changes coming to the market and the impact of seasonal headwinds. Additionally, they may be exaggerating their preparation for downturns, their usage of AI and technology in the RPO business, and the number of acquisition opportunities available in the market. Finally, management may be concerned about the duration of government aid programs
Although management's concerns about revenues, new business, and the RPO business suggest the potential for near-term headwinds, market expectations are far too bearish given the firm's strong business profile and secular executive staffing tailwinds, 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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