Korn Ferry Goes On Break-Out Alert

Tuesday, June 22, 2021 | Thomas Hughes
Korn Ferry Goes On Break-Out Alert

Korn Ferry Proves Labor Market StrengthIs Real

The fiscal Q4 results from Korn Ferry (NYSE: KFY) prove the health of the labor market even if the data doesn't. Not to say the data doesn't show strong labor market conditions, only that there are a large number of lingering unemployed persons in a market apparently flush with positions. The point here is that Korn Ferry beat the expectations on all levels, raised its guidance for the coming year, and increased its dividend making it a stock of great interest to us. If you are looking for exposure to the higher end of the labor market and a safe dividend this could be your stock.

“During the fiscal fourth quarter we generated $555 million in fee revenue, an all-time record, up 26% year-over-year. Our profitably was very strong, with earnings per share of $1.21, an all-time high and Adjusted EBITDA margin at 20.3%,” said Gary D. Burnison, CEO, Korn Ferry.

Korn Ferry Is On The Verge Of A Major Breakout

Shares of Korn Ferry have been rallying all year on rapidly improving fundamentals and the expectation of global economic reopening. Now, with results exceeding even the broad markets high expectations, the stock is moving higher and on the verge of a major breakout. The company reported a record fee revenue of $555.20 million for the quarter which is a sequential increase of 17%, up 26% from last year, up 13% over the last two years, and beat the consensus by 1400 basis points. 

The top-line strength was driven by double-digit gains in all four operating segments. The digital segment, which is also the smallest in terms of its contribution to revenue, grew the slowest at 16% year-over-year. The RPO segment, Recruitment Process and Outsourcing, grew 46% year-over-year to account for about 20% of Revenue. The two largest segments, Consulting and Executive Search,  grew 27%  and 20% respectively.

The strength in revenue was also seen in margins and on the bottom line. The company reported a record net income, operating income, and adjusted EBITDA. The operating margins came in at 15.5% GAAP to drive EPS of $1.21. This is not only a record EPS but also beat the consensus by $0.36 to drive the full year results well above expectations as well. 

Looking forward, the company is expecting revenue to tick lower sequentially from the fourth quarter to the first quarter of fiscal 2022 but that seasonal weakness is expected. What was not expected was for the guidance to assume a 55% year-over-year increase and a 10.5% gain over the two-year period, and that’s at the low end of the range. If the company’s results only meet the low end of the guidance they will still be on track to beat the current full-year consensus estimates by a wide margin.

Korn Ferry Increases The Dividend

Korn Ferry has been paying an incredibly safe and stable dividend for the last 7 years. That is, up until now. The board approved a 20% increase to the quarterly dividend which is payable on July 30th and goes ex-dividend on July 5th. The new payout is worth $0.12 quarterly or $0.48 annually for a yield near 0.75%. While the yield is on the low side, it is incredibly safe with a payout ratio below 17% and a fortress balance sheet to back up the ample amount of free cash flow. We aren't expecting future dividend increases but they could easily come.

The Technical Outlook: Korn Ferry Is On Break Out Alert 

Shares of Korn Ferry are up about 5% in the pre-market session and on the verge of a major breakout. Resistance is at the previous all-time high set back in 2018 and represents a very significant technical level. If price action is able to set a new all-time high and sustain it, the stock could easily see gains in the range of $30 or just shy of 50% over the next two quarters. 

Korn Ferry Goes On Break-Out Alert

Should you invest $1,000 in Korn Ferry right now?

Before you consider Korn Ferry, you'll want to hear this.

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While Korn Ferry currently has a "Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Korn Ferry (KFY)2.4$67.84-1.3%0.71%32.62Buy$80.50
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