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Korn Ferry Is Worth a Second Look

Investors need to look beyond possible short-term disruptions

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Jan 03, 2022
Summary
  • Korn Ferry is the largest executive recruitment company in the world.
  • The company reported record quarterly net income for the fiscal second quarter.
  • The macroeconomic outlook for the staffing and consulting industries are promising.
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Headquartered in Los Angeles, Korn Ferry (

KFY, Financial) is the world’s leading and largest executive recruitment company,

The company's operations include designing optimal organization structures, roles and responsibilities as well as facilitating the process of hiring the right talent and providing post-employment advisory services. As the leader of the executive recruitment industry, Korn Ferry is equipped with 7,000 experts in more than 50 different countries working across five core areas: organization strategy, assessment and succession, talent acquisition, leadership and professional development and total rewards. The company’s clients include some of the largest and most prestigious public and private companies, middle-market and emerging growth companies as well as governmental and not-for-profit organizations. The company has operations in North America, Asia-Pacific and Latin America.

Earnings recap

Korn Ferry reported revenue of $643.4 million for the second quarter of fiscal 2022, up 47% in comparison to the same period last year. The company reported a record quarterly net income of $75.8 million, compared to $27.8 million in the corresponding quarter last year. The operating income and adjusted Ebitda were both impressive and reached all-time highs at $103.8 million and $134.9 million, while the operating margin stood at 16.2%.

In meeting its policy of distributing wealth to shareholders, Korn Ferry declared a quarterly dividend of 12 cents per share on Dec. 7, which is payable on Jan. 14 to shareholders of record as of Dec. 21, 2021.

Strategies are aligned in the right direction

Korn Ferry seems to be focused on strengthening its talent pool, which is a good sign for long-term-oriented investors. In early December, Jaime Massar joined the company as a senior client partner in the company’s global legal practice based in Los Angeles. She has deep expertise in the legal field, especially in placing general counsels and other senior level legal officers across high-growth industries undergoing significant transformation. In a period of critical change such as now, she is viewed as an asset to serve the clients well in terms of legal recruitment strategies.

Followed by that, in mid-December, Korn Ferry announced John Stefanek has joined as a senior client partner in the global technology markets and technology practice based in Chicago. His recruitment will bring invaluable expertise into the organization as the company expands its footprint across consumer services, digital, industrial distribution, health care services, health care technology and e-commerce industries.

Korn Ferry is expanding its digital footprint through the launch of the Korn Ferry intelligence cloud and new artificial intelligence-enabled talent analytics platform, which combines technology and data-driven insights with its over 50 years of consulting expertise. This platform, which combines labor market data with clients' HR information system data, facilitates clients to better understand and act on talent shortages while designing talent strategies. The HR tech platform uses success profiles to benchmark and address talent gaps of leaders, teams and individuals while creating exciting career paths and developing an excellent talent blueprint for its clients.

The outlook is promising

Management has guided for revenue between $640 million and $660 million in the next quarter and diluted earnings per share in the range of $1.38 to $1.56. This is based on the assumption that there will be no impact from more lockdowns and that worldwide economic conditions will continue to improve.

Many sectors of the global economy are currently recovering from the virus-induced recession, and companies are aggressively trying to fill new positions, which has led to record-high job openings in the United States. According to a Labor Department survey, job openings jumped a massive 431,000 to 11 million last October, suggesting the macroeconomic outlook for the recruitment industry is positive.

The rapid growth of certain concepts and developments such as remote work, diversity of workforces, skills-based employment and increased focus on employee benefits may sound simple, but to implement these changes, a strategic recruitment solution is required. This increasingly complicated nature of the industry has tilted the odds in favor of leading recruitment companies that provide total workforce solutions, so Korn Ferry seems well positioned to benefit from this trend.

The staffing industry is also in the middle of technological transformation, which is essential for proper segmentation and matching of candidates for appropriate job opportunities. According to a study by LinkedIn, 68% of the professionals who are involved in the recruiting process say that the most productive method of improving the recruitment process in the next five years is to invest time and money in new recruiting technology. These types of investments will also be a positive for the industry and Korn Ferry.

Takeaway

Korn Ferry might face some challenges in the next few weeks because of rising health risks, but the medium to long-term outlook for the company is promising amid improving macroeconomic conditions. Despite reporting record earnings, the company is still valued at a forward price-earnings ratio of just 13 in the market, which suggests the stock is attractively valued today.

Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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