Publicly Traded Search Firms See Flurry of Investor Activity

October 18, 2016 – Hedge funds seems to be having a grand old time investing in, and divesting of, search firm stocks these days. Some well-known investment brands are acquiring new stakes, while others are reducing positions and moving on.

Whether they’re on their way in or heading for the exits, one thing is certain: hedge funds currently own more than 80 percent of Korn Ferry and Heidrick & Struggles, and that heavy emphasis on one class of investor group is unlikely to change anytime soon.

At Korn Ferry, hedge funds have been both adding to, and reducing, their stakes in the world’s largest search firm and leadership services provider. Here’s a look at some recent activity that’s become publicly available:

Nationwide Fund Advisors, a privately owned investment manager, reduced its position in Korn Ferry by 55 percent during the second quarter, following a move by BlackRock to increase its stake in the firm by 117 percent in the first quarter. The investor now owns 3,516 shares of the company’s stock worth $100,000 after buying an additional 1,896 shares in the last quarter.

Quantbot Technologies LP acquired a new stake in Korn Ferry during the second quarter worth $307,000. This followed on the heels of Aperio Group LLC increasing its stake in Korn Ferry by 4.9 percent in the first quarter. Aperio Group now owns 10,945 shares of Korn Ferry’s stock worth $310,000 after buying an additional 516 shares in the last quarter.  

Airain Ltd acquired a new stake in Korn Ferry during the second quarter worth $340,000. Not to be undone, Fox Run Management LLC acquired a new stake in Korn Ferry during the second quarter worth $348,000.

A full 85 percent of Korn Ferry stock is currently owned by hedge funds and other institutional investors.

Analysts Weigh In 

A number of analysts have weighed in on Korn Ferry shares. Here’s what they’re currently thinking:

TheStreet downgraded shares of Korn Ferry from a ‘buy’ rating to a ‘hold’ rating in a research report in late June. Deutsche Bank AG started coverage on shares of the company in a research report in mid-August. They issued a ‘hold’ rating and a $27 target price on the stock.

Zacks Investment Research raised shares of Korn Ferry from a ‘sell’ rating to a ‘hold’ rating in a research report in mid-August. Piper Jaffray Cos. reissued a ‘neutral’ rating and set a $25 price objective (down from $31) on shares of Korn Ferry in a research report in early July.

Robert W. Baird cut their price objective on shares of Korn Ferry from $27 to $26 and set a ‘neutral’ rating on the stock in a research report in early September. One equities research analyst has rated the stock with a sell rating, five have assigned a hold rating and one has issued a buy rating to the stock. The firm has a consensus rating of ‘Hold’ and a consensus price target of $32.20.

Korn Ferry has a 52-week low of $18.57 and a 52-week high of $38.93. The stock has a market capitalization of $1.20 billion, a PE ratio of 103.02 and a beta of 1.56. The firm has a 50-day moving average of $22.39 and a 200-day moving average of $24.98.

Financial Performance

In September, Korn Ferry posted 2017 fiscal first quarter revenues of $392.9 million, a 40 percent increase compared to revenues of $279.3 million a year ago in the same period. The growth was primarily due to increases in fee revenue in Futurestep and the company’s recently acquired Hay Group segments.

During the quarter, Korn Ferry substantially completed its fiscal 2016 restructuring plan, integrating the Hay Group entities that were acquired in the prior year acquisition. It eliminated redundant positions and operational and general and administrative expenses and consolidated office space. As a result, Korn Ferry recorded additional restructuring charges, net of $24.5 million, of which $11.5 million relates to severance and $13 million relates to the consolidation of office space. The integration of Hay Group is costing Korn Ferry more than it bargained for when it struck the largest acquisition deal in its — and the search industry’s — history 10 months ago.

Heidrick & Struggles

At Heidrick, hedge funds have also recently made changes to their positions in the company:

Emerald Acquisition Ltd. acquired a new stake in Heidrick & Struggles during the second quarter. The investment firm acquired 54,356 shares of the Heidrick’s stock, valued at approximately $917,000. Emerald owned approximately 0.29 percent of the search firm as of its most recent SEC filing. Prudential Financial raised its stake in shares of Heidrick by 20 percent in the first quarter.

Prudential now owns 48,549 shares of the company’s stock valued at $1,151,000 after buying an additional 8,100 shares in the last quarter. Hancock Holding Co. raised its stake in shares of Heidrick by 24.5 percent in the first quarter. Hancock now owns 27,400 shares of the firm’s stock valued at $649,000 after buying an additional 5,400 shares in the last quarter.

Goldman Sachs Group also raised its stake in shares of Heidrick by 2.4 percent in the first quarter. Goldman Sachs now owns 122,947 shares of the company’s stock valued at $2,913,000 after buying an additional 2,884 shares in the last quarter.

BB&T Securities LLC purchased a new stake in shares of Heidrick during the first quarter valued at about $475,000. Lastly, Springbok Capital Management LLC raised its stake in shares of Heidrick by 493.8 percent in the first quarter. Springbok Capital now owns 8,402 shares of the company’s stock valued at $199,000 after buying an additional 6,987 shares in the last quarter.

Institutional investors and hedge funds own a whopping 88 percent of Heidrick & Struggles stock.

Heidrick has a 52-week low of $16.23 and a 52-week high of $30.62. The stock has a market capitalization of $372.6 million, a PE ratio of 22.28 and a beta of 1.61. The company has a 50-day moving average of $18.77 and a 200-day moving average of $19.32.

Analysts’ Take

Heidrick & Struggles has been the subject of several recent research reports in recent months:

Deutsche Bank AG initiated coverage on the firm in a report in mid-August. They set a ‘hold’ rating and a $19 price objective for the company. Zacks Investment Research upgraded Heidrick from a ‘strong sell’ rating to a ‘hold’ rating in a report in late June. One analyst has rated the stock with a sell rating, three have issued a hold rating and one has issued a buy rating to the company’s stock. The stock has a consensus rating of ‘hold’ and a consensus price target of $26.

Financial Performance

In late July, Heidrick posted second quarter net revenues of $148.9 million, an 11.9 percent increase from revenues of $133 million during the same period a year ago, topping Wall Street forecasts.

The Americas and Europe regions drove second quarter revenue growth with Americas up 11 percent and Europe up 30.3 percent (32.6 percent on a constant currency basis). Asia Pacific revenue declined 4.6 percent (3.2 percent on a constant currency basis). Every industry practice at the firm contributed to growth in the second quarter, except education and social enterprise.

Contributed by Dale M. Zupsansky, Managing Editor, Hunt Scanlon Media