Bankruptcies Could Boost FTI Consulting

02/27/2015 7:00 am EST

Focus: STOCKS

George Putnam

Editor, The Turnaround Letter

Originally known as Forensic Technologies International, this turnaround idea now has a network of more than 4,300 employees located in 27 countries, explains George Putnam, editor of The Turnaround Letter

Now called FTI Consulting (FTI), the company has grown into a global business advisory firm with multiple areas of expertise, such as corporate finance and restructuring, plus forensic and litigation consulting. 

While revenues have continued to grow, earnings per share peaked in 2009 and have been largely lackluster ever since. However, there are two main themes that attract us to the FTI stock. 

First, because FTI has a very significant restructuring practice, it should be well positioned if we are correct in expecting a substantial upturn in defaults, bankruptcies, and restructurings in the coming quarters. 

Second, a new CEO took over about a year ago and he is refocusing the company's strategic efforts and resources to improve organic growth and profitability.

FTI has been a leader in advising on corporate restructurings; it has been involved in many prominent bankruptcies, including Enron, WorldCom, Lehman Brothers, and General Motors. 

We're not predicting another 2001-03 or 2008-09 sized bankruptcy wave, but we do believe that defaults and restructurings will pick up meaningfully over the next few years. This should be a significant opportunity for FTI.

But FTI isn't just waiting around for a surge in new bankruptcies.  New CEO Steven Gunby, who joined FTI in January 2014 following a 30-year career at the Boston Consulting Group, is focused on increasing growth and profitability in all of the firm's practice areas. 

The firm is investing in R&D and support services to leverage the work of its senior professionals. 

At the same time, it is looking at ways to take out unnecessary costs so that more revenues will fall to the bottom line. These efforts should continue to help the bottom line in quarters to come.

We believe that FTI represents a good way for investors to profit from an expected increase in corporate restructurings.  Moreover, the firm's internal efforts should increase profits even if the next bankruptcy wave is slow to materialize. 

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