KFY - Embedded Expectations Analysis - 2021 10 05
Korn Ferry (KFY:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 16.8x Uniform P/E. At these levels, the market is pricing in expectations for profitability to decline to historical lows. Although management's concerns about capacity, liquidity, and operating expenses suggest the potential for near-term headwinds, longer-term equity upside remains warranted.Specifically, management may be concerned about their capacity to meet demand, the strength of their positioning with smaller clients, and their inability to access the cash on their balance sheet. Moreover, they may lack confidence in their ability to estimate the size of the ESG opportunity, continue investing in the business, and fully accommodate the industry shift to horizontal leadership. Additionally, they may be downplaying concerns about upcoming travel expenses as business travel resumes, and they may lack confidence in their ability to restore prior share buyback levels and find accretive M&A opportunities. Finally, they may be exaggerating the strength of their client engagements in Europe and Asia Pacific.
Although management's concerns about capacity, liquidity, and operating expenses 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.
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- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
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