FTI Consulting (FCN):
Benefiting from the Subprime Mortgage
Fiasco
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By: Timothy Lutts
Editor
Cabot Wealth Advisory
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Published:
November 29, 2007
Ideally, you want to invest in
industries where the dominant
factors are positive and where
booming demand for products or
services means revenue growth is
rapid and profit margins are high.
Trouble is, in the current market
climate, the best growth stocks,
which have enjoyed great advances
earlier this year, are in retreat.
Buying them is a high-risk
proposition.
But there is one exception, and it's
interesting enough to discuss here.
It's FTI Consulting (NYSE: FCN, $57.00), and it
excels in helping businesses pick up
the pieces after they've been hit by
devastating events.
Originally, the company's name was
Forensic Technology Inc., which gave
a clear indication of the company's
expertise, and to tell the truth, I
liked that name better. But the
company has grown its sphere of
expertise over the years, and the
old name was rather limiting. So the
name has been reduced to initials,
which, of course, don't match its
ticker symbol.
In any event, FTI today provides a
wide variety of expert services to
assist companies with litigation,
corporate finance, restructuring,
media relations, and mergers and
acquisitions.
Historically, the company has been
an important player in a number of
high-profile corporate events.
For example, it was instrumental in
the AT&T/BellSouth merger,
presenting its findings to the Department
of Justice,
Federal Communications Commission, and a variety of state
regulatory commissions. Its forensic
accountants and forensic computer
consultants analyzed Refco's money
trails to tell the board where the
money went. It used over 40
employees over an eight-month period
to analyze and evaluate over 150
million Freddie Mac documents. It
assisted TYCO in responding to the
SEC's request for documents. And it
was instrumental in the
restructuring of American Home
Mortgage, Calpine, Dana, Delphi,
Northwest Airlines, Tower Automotive,
and Winn Dixie.
Today, FTI has clients in a wide
variety of industries, including
automotive, chemical,
communications, construction,
energy, financial services,
healthcare, insurance,
pharmaceutical, real estate, and
retail.
And business is booming. In the
third quarter, revenues grew +56% to
$253 million, while earnings jumped
+46% to $0.60 per share. The profit
margin for the quarter was 10.8%.
Following the report, analysts
adjusted their estimates of future
earnings upward.
And with good reason! All you've got
to do is look at all the failures in
the mortgage industry and the
related credit-dependent industries
to
conclude there's a lot of forensic
work to be done and that FTI will be
one of the major beneficiaries of
this trend.
Since the third-quarter report was issued, the
stock has climbed from $53 per share to
a high of around $61, totally
ignoring the broader markets'
weakness. Since then it has pulled
back just slightly,
trading around $57
per share.
Timothy W. Lutts
Editor
Cabot Wealth Advisory
About Timothy Lutts
[includes/bios/lutts.htm]
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