Korn Ferry Is A Good Buy For The Recession And Beyond

Korn Ferry Beats, Raises Guidance And Hikes The Dividend 

Korn Ferry (NYSE: KFY) is living proof that labor trends are strong and supported by robust tailwinds. The company’s positioning as an outsourcing/consulting/hiring firm has it well-positioned to benefit from these trends. While the stock is not a high-yielder, the company bolsters its payout with share repurchases that should help support the price action over the next few quarters. Add in the low 8.8X earnings the stock is trading for, analyst support, and institutional buying and we see this stock at a bottom if not on the verge of a reversal. 

“The world and our clients have entered a new reality – a Covid transitory era in which there will be a contest for not only growth, but also relevancy and profitability. Companies will have to reassess all aspects of their strategy including their organizational, leadership and talent imperatives. We are also in a cycle in which, regardless of economic activity, shortages of skilled labor are projected to persist for years to come,” says CEO Gary D. Burnison. 

The Analysts And Institutions Are Buying Korn Ferry 

The analysts have yet to come out with commentary following the Q4 report but we know it’s coming. Until then, the four ratings we have amounted to a Moderate Buy with a price target more than 40% above the current action. The price target has moderated a bit over the past month due to some price target reductions but it is up versus last quarter and last year and will trend higher by the end of the year unless we are mistaken. The last shout-out came from Bank of America which rates the stock in 13th position on its list of top small/midcap merger candidates. 

On the institutional end of the spectrum, institutional activity has been vigorous over the past two quarters and smacks of rotation within the group. The takeaway is that net activity over the past two quarters and the last 12 months is net bullish and has the stock set up for a rebound. In regards to volume, the net of activity over the 2 quarters is worth about $280 million in shares, or roughly 10% of the market cap with shares trading at $54. 

Korn Ferry Blows Past The Consensus Estimates 

Korn Ferry had a record-setting quarter to cap off a record-setting year. The company reported $727 million in consolidated revenue which is good for a gain of 30.4% over last year and beat the consensus by 690 basis points. The revenue strength translated to margin improvement as well with the operating margin up 370 basis points from last year. On the bottom line, the strength in revenue and margin improvement resulted in adjusted EPS of $1.75 or $0.20 better than the Marketbeat.com consensus and up 44.6% YOY and the guidance is just as good. The company is expecting to see Q1 fee revenue rise at 16% YOY at the low end of the range and drive EPS of $1.42 to $1.50 versus the $1.39 analyst consensus. 

Korn Ferry is using its cash and cash flow to full effect by paying a dividend and repurchasing shares. The stock is not a high-yielder at only 1.0% but the company just raised the payout by 25% and we see the potential for aggressive increases next year and the next as well. As for repurchases, the company repurchased shares worth about 2.0% of the count and upped the buyback by $300 million or 10.75% of the market cap. That’s a strong tailwind for price action. 

Turning to the chart, shares of Korn Ferry are up 3.0% in premarket action and confirming support at the recent low. The recent low is consistent with a potentially strong support level that we are now viewing as a bottom. Assuming the market follows through on the move, shares of Korn Ferry should move back up to the $60 level where the next hurdle lies. If the market can get above the short-term EMA a full reversal may be in effect. If not, we see this stock entering a trading range until later in the year.