FTI Consulting Moves Against The Market

By Gregory S. Davis | October 14, 2008 AAA

If you have to play a role in the financial crisis, then being a purveyor of financial and legal advice may be the best positions on the field. FTI Consulting (NYSE:FCN) is able to provide those services, which tend to spike in demand during times of economic upheaval, and benefit from the associated fees. Investors seeking an investment idea that stands to benefit for economic disruptions should consider FTI.

Big Box Retail - Restructuring
Electronics retailer Circuit City (NYSE:CC) hired FTI earlier this month to help the firm develop a turnaround plan. Circuit City has been fighting a losing battle against Best Buy for several years. For the second quarter ending in August, Circuit City reported a 9.6% net sales decrease to $2.39 billion while same store sales fell 13.3% versus the same period a year ago. While its future as a big box electronic retailer is in question, it will be interesting to see how FTI will advise Circuit City on how to proceed.

Wall Street Bankruptcy
Lehman Brothers, once thought of as a pillar of Wall Street, filed for the largest bankruptcy in history on September 15. FTI was one of the financial advisors selected by the committee representing unsecured creditors in the Lehman Brothers Holdings Bankruptcy case. During the clean up of the tech bubble in 2002, FTI was hired by WorldCom's creditors committee to figure out how internal financial maneuvering contributed to its downfall. (For related reading, see An Overview Of Corporate Bankruptcy.)

Cash Flow
FTI managed to increase revenue 38% for the first six months of the year over the same period a year ago. The upswing in revenue increased FTI's operating income by 54% to $126 million. Growing margins in corporate finance and restructuring were large contributors to its revenue growth in the second quarter.

Market Performance
FTI's stock was up more than 10% since the beginning of the year before the drop of the DJIA on Wednesday, October 15. The 733 point retreat of the Dow erased essentially all of FTI's stock appreciation for the year, but it has still handily outperformed the approximately -37.82% return of the SPDRS S&P 500 Index EFT (AMEX:SPY). (For more reading on the Dow check out Why The Dow Matters.)

Negative Correlation
It's worth noting that FTI has a beta of -0.31. The negative beta, a measure of volatility, suggests that FTI will move in the opposite direction of an index like the S&P 500. A perfect negative correlation would equate to a beta of "-1". Smaller competitors like Navigant Consulting (NYSE:NCI) and CRA International (Nasdaq:CRAI) have betas of -0.33 and 1.46 respectively.

Final Thoughts
The volatility we've experienced in recent weeks should make all investors reevaluate their investment decisions. Asset allocation mixed with the addition of a couple investments that have a record of moving against the broad market by benefiting during chaotic economic times are concepts investors should embrace.

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