Encouraging service activities, along with the increased adoption and success of the work-from-home trend, are enabling the Zacks

Consulting Services

industry to support the demand environment.

Service demand, innovation and acquisitions are helping

Gartner, Inc.


IT

,

CBIZ


, Inc.


CBZ

and

Huron Consulting Group Inc.


HURN

and sail through these testing times.

About the Industry

Companies grouped under the Consulting Services category offer professional advice in management, IT, human resources, environmental regulations, logistics and marketing, and real estate, serving multiple end markets. The space includes prominent names such as Accenture and Gartner. Amid the pandemic, the focus within the industry is currently on channelizing money and efforts toward more effective operational components, such as technology, digital transformation and data-driven decision-making. To position themselves suitably in the post-pandemic era and better utilize the opportunities that the economic recovery will bring, service providers are increasing their efforts toward formulating and reassessing strategic initiatives, identifying sources of demand and targeting end markets.

What’s Shaping the Future of Consulting Services Industry?

Exponential Growth:


This multi-billion-dollar industry has witnessed exponential growth since the 2008 financial crisis, enjoying a steady rate of revenues, profit and cash-flow growth. Consequently, the trend has enabled most industry players to pay out stable dividends.

Pandemic Resiliency:


Consulting services is one of the industries least affected by the pandemic. This is because, even amid a volatile situation, organizations require extensive advice on how to protect their employees and stay closer to consumers and shareholders. Further, this industry is one of the earliest pioneers of remote working that has now become part of the new normal. The nature of work enables industry players to function efficiently through the increased use of technology.

Non-stop Service Demand:


With service activities in good shape, the demand for consulting services is rising steadily. The Services PMI measured by the Institute for Supply Management has stayed above the 50% mark for the past two years, indicating continued expansion.

Zacks Industry Rank Indicates Bright Prospects

The Consulting Services industry, housed within the broader

Business Services

sector, currently carries a Zacks Industry Rank #20. This rank places it in the top 8% of 248 Zacks industries.

The group’s

Zacks Industry Rank

, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term growth prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.

Analysts covering the companies in this industry have been steadily pushing their estimates northward. Over the past year, the industry’s Zacks Consensus Estimate for 2022 earnings has moved 3.5% north.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and current valuation.

Industry’s Price Performance

Over the past year, the Consulting Services industry has declined 27.5%. The S&P 500 composite and the broader sector have declined 19.6% and 41.8%, respectively, in the said time frame.

One-Year Price Performance

Industry’s Current Valuation

On the basis of the forward 12-month price-to-earnings (P/E), which is a commonly used multiple for valuing consulting services companies, we see that the industry is currently trading at 22.46X, above the S&P 500’s 17.28X but below the sector’s 23.96X.

Over the past five years, the industry has traded as high as 35.21X, as low as 18.82X and at a median of 23.63X, as the charts below show.

Price to Forward 12 Months P/E Ratio

3 Consulting Services Stocks to Consider

We present three stocks that are well-positioned for near-term growth.

Huron Consulting

: This provider of consultancy services is currently witnessing strength across its healthcare, education and commercial segments. Sales remain healthy, driven by growing demand for technology and analytics, financial advisory, digital, revenue cycle managed services and performance improvement offerings.

The Zacks Consensus Estimate for 2023 EPS suggests a 20.1% improvement from the year-ago reported number. The consensus EPS estimate for the year has increased 1% over the past 60 days. HURN currently carries a Zacks Rank #2 (Buy).

You can see


the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: HURN

CBIZ

: This provider of financial, insurance and advisory services is currently benefiting from strong organic revenue growth as well as contributions from recent acquisitions. Within CBIZ’s financial services group, top-line growth across all major service lines is being driven by the company’s investments in systems, reporting, tools and training that have helped it to improve the pricing of services. Further, strong sales and high client retention rates support the performance of the company’s Benefits and Insurance Group.

The Zacks Consensus Estimate for 2022 suggests a 13.7% improvement from the year-ago reported number. The consensus EPS estimate for the year has remained unchanged over the past 60 days. CBIZ currently carries a Zacks Rank #2.

Price and Consensus: CBIZ

Gartner

: The research giant has a large and diverse addressable market with low customer concentration, which helps it mitigate operating risks. The company offers timely, thought-provoking and comprehensive analysis. Its research reports are used by various companies across different sectors, strengthening its leading position in the market.

Consistency in rewarding shareholders through share buybacks not only instills investors’ confidence in the stock but also positively impacts earnings per share. The company’s bottom line continued to benefit from improvement in operational efficiency.

The Zacks Consensus Estimate for 2023EPS has increased 3.3% to $9.6 over the past 60 days. Gartner currently carries a Zacks Rank #3 (Hold).

Price and Consensus: IT

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