Tickers in this Article: TW, ACN, MMC, FCN, MAN
Consulting stocks have been a mixed bag since fears of a double dip renewed. But Towers Watson & Co (NYSE:TW), the world's largest employee-benefits consulting firm, is a notable outperformer in the group. Last week, the New York City-based consulting firm gained 3% while the S&P shed over 6%. Is the market giving Towers Watson too much credit for having a hand in the firing business? (To read more, check out Great Company Or Growing Industry?)

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Towers Watson Doing Fine So Far
Towers Watson is a risk management and human resources consulting company. They also provide actuarial services, investment consulting and reinsurance brokerage practices. Competitors include Accenture Plc (NYSE:ACN) and professional services provider Marsh & McLennan Companies, Inc. (NYSE:MMC)

Towers Watson is showing few signs of the stress that's afflicting the rest of the market. The company has a very light debt load, comprised of $99 million in short-term debt (although $75 million to $100 million will be drawn from the credit facility to pay bonuses in September). Plus, there's $450 million in cash on hand as of the end of the last quarter.

Revenues jumped 14% during the fourth quarter, easily beating expectations thanks to the company's largest divisions - benefits and financial services - performing well. However, revenues will compress if lower global growth fears are realized, particularly in the company's highly cyclical data, surveys and technology segments. Earnings did drop 25% last quarter to $43.9 million, down from $58.1 million in the same period last year.

Safety in the Firing Business?
Towers Watson's revenue streams appear to be fine, but so do a lot of other companies who took it on the chin last week. Why exactly is Towers Watson share price not reflecting the same market volatility as so many other companies who are generating good cash flow? The answer may lie in the jobs picture.

When the economic environment becomes challenging, companies oftentimes turn to consulting firms for advice. That's part of the reason why certain consulting stocks didn't get beat up as much as other segments of the market during the downturn in 2008. For a fee, human capital and risk management consultants come in and assess what parts of a business are vital to core operations and identify those that are expendable.

Towers Watson provides these services. It may seem like a dirty business, but when fear dominates the marketplace, it can be a profitable one. Beleaguered Bank of America recently decided to cut its workforce by 30,000; are more big corporations looking into Towers Watson's services to see what they can trim if the bottom drops out? The market may be overweighting this aspect of the business, as these services are just a portion of Towers Watson's revenue stream.

The Bottom Line
Watson certainly hasn't succumbed to market volatility thus far, but the same can't be said for some of the competition. In fact, it's been a stock picker's market in the consulting industry during 2011. Year-to-date, Towers Watson is up 15%, FTI Consulting, Inc. (NYSE:FCN) is close to the black, and workforce solutions company ManpowerGroup (NYSE:MAN) is off a stunning 46%.

It's likely that Towers Watson won't be able to keep outperforming the group by such a wide margin. Favorable year-over-year comparables may continue to provide some cushion for the stock over the next few quarters. Also, over half of the $100 million share buyback program that has been supporting shares of Towers Watson has been exhausted, and it might already be baked into the cake. It will become increasingly difficult for Towers Watson to remain decoupled from the market if conditions continue to deteriorate.

Additionally, there are better yields to be had in the consulting space. Even considering the forthcoming 33% increase in Towers Watson's 2012 dividend, a meager 0.7% yield won't attract investors right now. If economic activity contracts, all consulting firms will be hurt. (For more on dividends, read Why Dividends Matter.)

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