Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice! As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.
The market resumed its correction yesterday (2/29/08) with the Dow dropping 315.79 to 12,266.39, the Nasdaq dropping 60.09 to 2,271.48 and the S&P giving up 37.05 to 1,330.63. Meanwhile, inflation concerns continue to be an issue with oil remaining over $100/barrel at $101.84 and gold soaring to $975.00/ounce. Adding to inflation concerns in America is the weakness of the dollar as it dropped to a record low against the Euro last week. Meanwhile Ben Bernanke continues to indicate that he is prepared to cut interest rates further to support the economy even while such cuts may likely fuel the continued drop in the dollar and thus inflation concerns.
Even though this weak economy, in conjunction with soaring oil and commodity prices and evidence of increasing price inflation might suggest the notorious 'stagflation' scenario, Fed Chairman Bernanke testified to the contrary. Let us hope that he is correct.
In the midst of all of this gloom and doom, I still look for new stocks or old stocks that I have reviewed previously, to show up in my own evaluation of equities. That doesn't mean I am prepared to be buying anything. As you may or may not know, I use my own portfolio actions to determine my own investment strategy. In other words, I wait for one of my own stocks to hit an appreciation target and triggers a partial sale to give me a 'signal' to be buying a stock. I also 'sit on my hands' when I sell stocks on 'bad news'. This creates a more or less investment barometer that allows my portfolio to drift between five (my minimum), and twenty (the maximum) number of postions. I currently hold seven different equities.
Looking for new names to discuss here on this website, I scan the lists of large percentage gainers. Yesterday, I saw that FTI Consulting (FCN) made the list of top % gainers on the NYSE. Reviewing some of the underlying data on this company, it appeared that it deserved a 'revisit' and an update here on Stock Picks. FTI Consulting (FCN) closed at $63.50/share yesterday (2/29/08) for a gain of $7.62 or 13.64% on the day. I do not own any shares nor do I have any options on this company.
Because of the rest of the information I shall review shortly,
FTI CONSULTING (FCN) IS RATED A BUY
First of all, I say "revisit" on this entry because I first wrote up FTI Consulting (FCN) on Stock Picks Bob's Advice on August 6, 2003, just a few months after getting this blog started when the stock was trading at $21.90/share. With FCN closing at $63.50, this represents a gain of $41.60 or 190% since posting.
Let's take a closer look at this company--first of all,
What exactly does this company do?
According to the Yahoo "Profile" on FCN, the company
"...provides consulting services to organizations confronting the legal, financial, and reputational issues. It provides advice and solutions to corporations, financial institutions, and law firms in the areas of forensic analysis, investigation, economic analysis, restructuring, due diligence, strategic communication, financial communication, and technology."
How did they do in the latest quarter?
As is often the case, an outstanding earnings report is what provides the 'fuel' to drive a stock sharply higher. In this case, after the close of trading on Thursday, February 28th, FTI Consulting announced 4th quarter 2007 results. For the quarter ended December 31, 2007, revenue climbed 29.4% to $280.5 million, up from $216.8 million the prior year. Earnings climbed 42.9% to $.60/share from $.42/share the prior year. As the report points out, the company managed to increase its earnings "...despite a 24.1 percent increase in the weighted average shares outstanding to 51.3 million shares from 41.4 million shares in the prior year period."
Just as important as the solid earnings report was the fact that the company beat expectations with this report. According to Reuters Estimates, analysts had been expecting earnings of $.58/share (they came in at $.60), on revenue of $261.5 million (they came in at $280.5 million).
The company has recently been busy acquiring other companies and likely using the issuance of shares to finance this activity. They acquired TSC Brasil as announced just the other day, Thompson Market Services Ltd. announced on February 19, 2008, and Strategic Discovery announced on Febrary 12th, Rubino & McGeehin also on February 12th. However, FCN appears to be using its shares well as at least in the past quarter, the issuance of shares was more than offset by growth in earnings and revenue.
How about longer-term results?
Reviewing the Morningstar.com "5-Yr Restated" financials on FTI Consulting (FCN), we see a strong, if imperfect record for the company. Revenue has grown strongly from $224 million in 2002 to $708 million in 2006 and $938 million in the trailing twelve months (TTM). Earnings have increased from $1.09/share in 2002 to $1.82/share in the TTM. However, earnings did dip from $1.41 in 2003 to $1.01 in 2004 before rebounding to $1.35/share in 2005. Earnings also dipped from $1.35/share in 2005 to $1.04/share in 2006 before rebounding strongly to $1.82/share in the TTM. Overall the trend is for strong earnings growth.
Total shares have grown from 38 milliion in 2002 to 44 million in the TTM. (and up to 51.3 million shares as reported in the latest quarterly earnings announcement.) This increase from 38 million shares in 2002 to 51 million shares---about a 33% increase in shares, has been accompanied by an increase of about 300% in revenues during the same time and an approximately 70% increase in earnings, again demonstrating that the company has been able to increase its financial performance much stronger than the dilutive effects of increased shares.
Free cash flow while also not rising in a linear fashion, has been consistently positive and growing recently with $47 million in 2004 increasing to $34 million in 2006 and $72 million in the trailing twelve months.
The balance sheet appears solid with $62 million in cash and $306.0 million in other current assets. The current ratio is close to 2.0 with $183.2 million in current liabilities reported. The company does have a fairly significant long-term liabilities load reported at $667.8 million.
What about some valuation numbers?
Reviewing the Yahoo "Key Statistics" on FCN, we can see that this is a mid cap stock with a market capitalization of $3.05 billion. The trailing p/e is 35.08, with a forward p/e (fye 31-Dec-08) estimated at 21.45. The PEG ratio (5-yr expected) is reasonable at 1.40.
In terns of the Price/Sales ratio, according to the Fidelity.com eresearch website, the company is richly priced with a Price/Sales (TTM) ratio of 2.88 compared to the industry average of 2.09. Also from Fidelity, we see that relative to other companies in the industry, the profitabiltiy of FCN is unimpressive as measured by the Return on Equity (TTM) of 12.78% compared to the industry average of 28.36%.
Returning to Yahoo, we can see that FCN has 48.06 million shares outstanding (up to 53 million as reported in the latest quarterly report), with 47.32 million shares that float. As of January 10, 2008, there were 5.04 million shares out short representing 6.9 trading days of volume (the short ratio). This is higher than my own '3 day rule' suggesting that this volume of short-selleres might have led to a bit of a squeeze yesterday on the announcement of strong earnings news driving the stock higher in the fact of an overall weak market.
No dividends are paid and the last stock split was a 3:2 split on June 5, 2003.
What does the chart look like?
Reviewing the 'point & figure' chart on FCN from StockCharts.com, we can see a chart of what I would have to describe as amazing strength going back all the way to January, 2000, when the stock was trading at $1.50/share. there have been periods of relative weakness but the stock chart really hasn't broken down at all and currently is showing renewed strength.
Summary: What do I think about this stock?
To summarize, FTI Consulting (FCN) made an extremely strong move higher yesterday in the face of a very weak market. This was likely based on the fact that the company announced strong earnings that beat expectations on both revenue and earnings figures. They did this with a fairly large population of 'nay-sayers' on board represented by the significant short interest. Longer-term the company has been a bit erratic with earnings but has maintained a strong record of revenue and earnings growth with relatively stable outstanding shares outpaced by revenue and earnings increases.
Free cash flow is positive and growing and the balance sheet is quite acceptable. Valuation is a bit mixed with a reasonable p/e relative to growth as represented by a PEG of about 1.4. The Price/Sales and the Return on Equity appear to be a bit anemic relative to their peers. The price chart is incredible showing a very strong picture of price appreciation that appears unabated. Overall I liked this stock in 2003 and I still like this stock in 2008! I am not ready to buy any shares as I do not have my own idiosyncratic indicator to be buying anything at all, but if I were....this is my kind of stock!
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Wishing you a wonderful weekend and a great week trading and investing next week.
Yours in investing,