Korn Ferry: Industry Leader Bouncing Back

Core Insights - Recent market volatility has drawn parallels to the meme stock phenomenon of 2021, with significant price fluctuations observed in companies like Kohl's and Opendoor [2] - Maintaining discipline and focusing on fundamental analysis is crucial for investors during chaotic market conditions [3] Company Overview - Korn Ferry (KFY) is positioned as an industry leader with a strong alignment of executive and shareholder interests, high yield supported by robust cash flows, and an undervalued stock [4][5] - The company has a proprietary dataset that has expanded significantly, increasing from 4 billion data points in fiscal 2Q20 to over 10 billion by fiscal 4Q25 [8] Financial Performance - Korn Ferry's total fee revenue grew 4% year-over-year in fiscal 4Q25, with a long-term growth trend of 10% and 9% compounded annually over the last 10 and 20 years, respectively [12] - The company has achieved revenue and net operating profit after-tax (NOPAT) growth of 8% and 13% compounded annually since fiscal 1999 [14] - Korn Ferry's Core Earnings increased from $82 million in fiscal 2015 to $228 million in fiscal 2025, reflecting an 11% compounded annual growth rate [15] Market Position and Growth Opportunities - Korn Ferry operates in five business segments and is recognized as the 1 executive recruiting firm in the U.S. as of 2025 [10] - The HR and recruitment services market is projected to grow 15% compounded annually from 2024 to 2034, providing a favorable environment for Korn Ferry [13] Profitability and Shareholder Returns - Korn Ferry boasts industry-leading profitability, with a return on invested capital (ROIC) increasing from 12.3% in fiscal 2015 to 13.6% in fiscal 2025 [19] - The company has returned over $240 million in dividends since fiscal 2020 and has repurchased $457 million in shares during the same period, indicating strong capital return strategies [23][24] Financial Stability - Korn Ferry generated $1.1 billion in free cash flow from fiscal 2020 to fiscal 2025, equating to 35% of the company's enterprise value, ensuring the ability to fund dividends and share repurchases [26] - The company maintains a strong balance sheet and an attractive credit rating, positioning it well to navigate economic uncertainties [28][30] Challenges and Market Dynamics - A tight labor market may pose challenges for recruitment service providers, with hiring trends showing a decline since mid-2020 [31] - Despite these challenges, Korn Ferry's focus on high-level executive roles provides some insulation against broader hiring slowdowns [32]