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3 Stocks From the Booming Consulting Services Industry

Encouraging service activities, along with increased adoption and the 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 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.

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Pandemic Resiliency: The consulting services industry is one of those 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 consecutive months, 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 #55. This rank places it in the top 22% of 249 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.

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 18.1%. The S&P 500 composite and the broader sector have declined 14.1% and 20.6%, 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 21.91X, above the S&P 500’s 17.77X but below the sector’s 22.87X.

Over the past five years, the industry has traded as high as 36.99X, as low as 19.7X and at a median of 24.77X, 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: The 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 the company’s 2023 EPS suggests a 17.5% improvement from the year-ago reported number. The consensus EPS estimate for the year has increased 1% over the past 30 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

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 the company’s 2023EPS has been unchanged at $9.49 over the past 30 days. Gartner currently carries a Zacks Rank #2.

Price and Consensus: IT

CBIZ: The 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 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 the company’s 2023 earnings suggests a 12.7% improvement from the year-ago reported number. The consensus estimate for EPS for the year has been unchanged at $2.4 over the past 30 days. CBIZ currently carries a Zacks Rank #3 (Hold).

Price and Consensus: CBZ

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Huron Consulting Group Inc. (HURN) : Free Stock Analysis Report

Gartner, Inc. (IT) : Free Stock Analysis Report

CBIZ, Inc. (CBZ) : Free Stock Analysis Report

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Zacks Investment Research