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FTI Consulting, Inc. (FCN), Huron Consulting Group (HURN): The Last Bargain in the Market

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After the run-up in the market over the last several months, it is becoming extremely difficult for picky investors to uncover bargains. Fortunately, there are still some bargains remaining for investors who look closely enough.

Of course, the only remaining bargains are in industries that are currently out-of-favor. For example, consulting firms are currently being ignored by the market despite strong cash flows. FTI Consulting, Inc. (NYSE:FCN) looks especially cheap.

FTI Consulting, Inc. (NYSE:FCN)Reliable cash generator

FTI Consulting, Inc. (NYSE:FCN) handles litigation consulting and bankruptcies. These businesses lines enable the company to continue earning steady profits even during economic downturns, when bankruptcies and lawsuits tend to increase.

But that is not the only reason FTI Consulting, Inc. (NYSE:FCN)’s business looks appealing. The company also has a much higher employee retention rate than many of its competitors — an important benchmark in an industry known for poaching employees. Since consulting firms rely on their employees to generate profits, high employee retention yields stable profitability.

Another favorable aspect of FTI Consulting, Inc. (NYSE:FCN) is that it has few peers of similar size that operate in its main business lines. For instance, Huron Consulting Group (NASDAQ:HURN)’s litigation and bankruptcy group is a much smaller focus for the company, which affords it fewer resources than FTI Consulting, Inc. (NYSE:FCN) devotes to the lines.  That does not mean that Huron Consulting Group (NASDAQ:HURN) is not a good company — it is. It earns high and stable profit margins and is considered to be one of the better firms in the industry. However, it does not pose a major competitive threat to FTI Consulting, Inc. (NYSE:FCN) due to its relatively small presence in litigation and bankruptcy.

Navigant Consulting, Inc. (NYSE:NCI), another large consulting firm, does not directly compete with FTI at all. Instead, Navigant Consulting, Inc. (NYSE:NCI) is active in health care and energy consulting. The health care reform legislation — all 906 pages of it — will provide Navigant Consulting, Inc. (NYSE:NCI) with a tailwind in health care for years to come. Meanwhile, the high level of activity in the North American energy sector is sure to keep business coming in the door for at least another decade. Luckily, both Navigant Consulting, Inc. (NYSE:NCI) and FTI can exist and prosper alongside one another.

Investment case

FTI produces lots of free cash flow — lots more than it reports in earnings. Over the last four quarters, the company has produced $3.61 per share in free cash flow. At a recent price just shy of $36 per share, the stock trades at a 10% free cash flow yield. Investors who buy the stock today will likely earn at least a 10% annualized return on investment — assuming management re-invests the cash flow appropriately or returns it to shareholders.

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