KFY - Embedded Expectations Analysis - 2018 06 22
Korn/Ferry International (KFY:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) Earnings, with a 18.4x Uniform P/E. At these levels, the market is pricing in bearish expectations for the firm, which, despite the potential for near-term headwinds given management's negative sentiment, likely supportslonger-term outperformance should KFY just maintain profitability at projected
2018-2019 levels
Specifically, management may be exaggerating their focus on M&A to expand their solutions, and may lack confidence in the sustainability of average revenue per partner in Executive Search, driven by concerns about new business growth in the segment. Additionally, they may have concerns about their brand initiatives, particularly in terms of the impact these initiatives could have on margins, and may be concerned about their expectation for a loss per share of $0.74 to $0.66 in Q1 2019. That said, market expectations are for Uniform ROA to fall to levels not seen since 2013. At these valuations, should the firm maintain Uniform ROA at current levels, equity upside is likely warranted
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
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- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
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