FTI Consulting Inc (FCN)

Investment Committee Summary

Investment Thesis

At $151 (9 September 2026) FTI Consulting trades on 18 times forward earnings, in the lower part of its 52-week range. The firm advises on change, risk and disputes — work billed by the hour, so revenue is billable headcount multiplied by utilisation multiplied by rate, and the operating margin of 8.1% shows how thin the residual is once those people are paid. That thinness is the whole model: a few points of utilisation are most of the profit. The engine's anchors bracket the quote rather than condemn it. Probability-weighted value, carried through unchanged as the twelve-month target, is $162 — above the price; triangulated fair value of $140 sits modestly below it, leaving the shares fairly valued against that anchor set at -7%. Behind that sits net debt of ~$0.8B, modest against the cash this model generates. HOLD follows. The most damaging risk is that the firm carries the payroll through a demand pause, with utilisation and margin falling together — the structural branch, whose target sits below the 52-week low.

Narrative drafted 2026-08-16 by claude-opus-5 under supervision; reviewed by Marinus 2026-08-16.

The dashboard below is the whole argument on one page: spot ($151) against each valuation anchor, the scenario tree, technicals and the options-implied move.

Anti-Thesis (The Real Bear Case)

The structural bear is operating leverage running backwards. Advisory firms hire ahead of demand because capacity must exist before it can be sold; when demand pauses, the payroll is already committed and cannot be released quickly without destroying the franchise that wins the next mandate. Revenue flattens, utilisation slips, and at an operating margin of 8.1% a modest shortfall in billable days removes most of the earnings — the same leverage that flatters good years. Layer on price pressure, where clients push work to cheaper delivery or to tools that do a share of the analysis in-house, and the rate side deteriorates alongside the volume side. The market then re-rates a lumpy, people-dependent earnings stream well beneath 18 times, and the structural target lands below the 52-week low. Nothing here requires the loss of a single client relationship — only that clients buy fewer hours at a lower rate.

Key Debate

Gross Margin explains 71% of Monte Carlo outcome variance — the single variable that decides which side is right.

What the Market Is Pricing In

At the current price, the market pays 16.2× consensus forward EPS, vs the house DCF terminal 16.0×, and a peer median 22.9×. The house DCF sits 18% below spot, so the market is pricing in more than the house case — roughly 2.2pp of revenue CAGR.

Variant perception: the house view is below-consensus, and the thesis is primarily multiple-driven.

Scenario Analysis

The scenario tree spans a structural 'Structural — AI / Data-Disintermediation Risk' downside ($82.11) to a 'Bull — Re-Rate' bull case ($252); the probability-weighted blend (PWEV $162) is +7% versus spot.

Share-count charge: none applied. The probability-weighted value above is the gross per-share figure — no annual dilution is deducted — stock-based compensation runs at 1.0% of revenue; free cash flow net of SBC is $0.11B. SBC is therefore disclosed, not charged: read the per-share figures as before dilution.

Scenario rationale — the driver path behind every target:

• Structural — AI / Data-Disintermediation Risk (20%, $82.11). Structural impairment — AI / data-disintermediation risk: earnings AND the multiple compress together. Target sits below the 52-week low by construction.
• Recession — Hiring / Demand Pullback (17%, $133). Cyclical downturn — recurring data & outsourced-process revenue + client volumes + pricing weakens for 1–2 years before normalising.
• Base — Recurring Data + Volume Growth (35%, $170). Mid-cycle — normalised recurring data & outsourced-process revenue + client volumes + pricing; disciplined capital allocation; steady returns.
• Growth — Analytics / New-Product Expansion (20%, $214). Upside — analytics + new-product expansion lifts earnings above mid-cycle; the multiple expands modestly.
• Bull — Re-Rate (8%, $252). Upside tail — sustained tight conditions or a structural re-rate on analytics + new-product expansion.

Valuation Triangulation

Three weighted anchors — an intrinsic dcf, a scenario-weighted pwev and a monte carlo median (student-t + regime switching) — read them with their basis in mind. The Monte Carlo, the DCF terminal and any peer re-rate key off a market multiple, so they are not fully independent; only discounted cash flows themselves are genuinely multiple-free. The discipline is to read the spread and weight the cash-based view, not to treat three numbers as three independent votes.

The house blend DECLARES five anchor weights — DCF 35%, scenario PWEV 25%, Monte Carlo 15%, sum-of-parts 15%, peer re-rate 10%. For this name sum-of-parts, peer P/E re-rate are not computed, so 25% of the declared weight is redistributed across the anchors that exist — which is why the weights above differ from the declared ones. The fair value is unaffected by this disclosure; the blend has always worked this way.

Peer EV/Revenue re-rate — 0% weight: it duplicates the peer-multiple information already carried by the Peer P/E anchor while ignoring margin mix; weighting both would double-count the peer view. Shown as a cross-check.

Monte Carlo — the outcome distribution

10,000 paths, Student-t shocks (fat tails) with a regime-switching overlay. The median lands at $142 and 46% of paths finish above spot. The variance decomposition shows the gross margin is the dominant swing factor (71% of variance). The fundamental driver, not the multiple, sets the spread — a cleaner setup.

DCF — the cash-flow anchor

Independent of the market multiple: a 5-year path, WACC 8.5%, 16.0x terminal FCF multiple → $124. This anchor is deliberately the heaviest (47%): it is the valuation least hostage to the current multiple regime.

Peer benchmarking — relative value

Against the peer cohort, re-rating to the peer-median EV/Revenue multiple implies $578; the peer-median forward P/E is 22.9x, but the engine carries no P/E-implied price for this name (no forward-EPS basis at the peer step). A premium is only justified by superior growth/margins; otherwise it is multiple risk. Excluded from the weighted blend — shown only as a market cross-check.

Across all anchors the spread is 281% of the median — wide (genuine disagreement — the blend carries low valuation confidence).

Sensitivity

DCF/share — WACC × terminal multiple

DCF/share — revenue CAGR Δ × op-margin Δ

Tornado — DCF/share swing by driver (widest first)

Company lever — SoP/share vs Professional & Data Services multiple (AI re-rating) (base 19.0x)

Peer Quality & Weighting

Quality-weighted forward P/E: 19.7× (simple median 22.9×). Direct peers count 100%, segment 50%, broad 25%.

Historical-range cross-check: 52-week range $138–$189, centre $161 (+7% vs spot); spot sits at the 26th percentile of the range. Low-weight mean-reversion cross-check, not a fundamental anchor.

Risk / Reward & Margin of Safety

That ratio compares triangulated upside against the probability-weighted bear target, not the extreme tail; with a leg missing it is withheld rather than computed from a magnitude. Bull case (Bull — Re-Rate): $252.

Company Overview & Business Model

FTI Consulting Inc — INDUSTRIALS · CONSULTING SERVICES. FTI Consulting, Inc. provides business advisory services to manage change, mitigate risk, and resolve disputes on a global basis. The company is headquartered in Washington, District of Columbia.

How it makes money.

Edge. Narrow moat — inferred from a 8.1% operating margin and the professional & data services business model. Some pricing power / share stability; terminal multiple near the market.

Revenue-Segment Breakdown

The company-specific drivers behind the valuation — each segment carries its own growth, margin, multiple and capex intensity. (Tags: FACT reported · ESTIMATE from disclosures · INFERENCE judgment.)

Named Exposures

Demand & pricing cycle (FACT/ESTIMATE)

Capital intensity & shareholder returns (ESTIMATE)

Structural risk vs optionality (INFERENCE)

Industry Context — Industrials — Services

This name sits in the Industrials — Services cluster as a professional & data services name. recurring data/analytics + payroll/HR volumes + pricing (AI-disruption debate). Its scenarios are not guessed in isolation — they inherit a single, shared view of the cluster's driver cycle, so the names that depend on the same event are mutually consistent.

Value chain: RBA (recurring business services) · ULS (professional & data services) · CLH (recurring business services) · TRU (professional & data services) · CACI (recurring business services) · BAH (professional & data services) · PCTY (professional & data services) · G (professional & data services) · BCO (recurring business services) · SAIC (recurring business services) · FCN (professional & data services) · KBR (recurring business services) · EXLS (professional & data services) · LOPE (recurring business services) · MMS (professional & data services) · EXPO (professional & data services)

Mapping note: name-level 'Structural — AI / Data-Disintermediation Risk' (20%) + 'Recession — Hiring / Demand Pullback' (17%) map to cluster Pricing / AI-Disintermediation Reset (37%); name-level 'Growth — Analytics / New-Product Expansion' (20%) + 'Bull — Re-Rate' (8%) map to cluster Upside — Share / New-Service Expansion (28%) — the cluster row is the SUM of the mapped scenario probabilities, not a different estimate.

On the cluster's key downside — Pricing / AI-Disintermediation Reset — this name implies 37% vs the cluster house view of 37% (in line with the house). The cluster's full cross-stock reconciliation governs that the names which ride the same capex cycle assign it comparable odds.

Structure: Shared State — The Industrials — Services cycle is the shared macro driver. Driver — recurring B2B services (waste/uniforms/data/payroll) + pricing + AI-disruption debate. Dispersion — Members differ by cyclicality (quality compounders vs deep cyclicals).

Balance Sheet & Liquidity

Balance-sheet data as of 2025-12-31 (Alpha Vantage).

Capital Allocation

Free-Cash-Flow Quality

Accounting quality: SBC 1% of revenue; cash conversion (OCF/NI) 56% — earnings not cash-backed.

Earnings-Call Disconfirmation & Sentiment

Derived signals from the MCH market-data store (Alpha Vantage transcripts + news). Quantitative tone only — a disconfirmation flag, not a substitute for reading the call.

Management vs analyst tone (2026Q1): management +0.57 vs analyst floor +0.00 → delta +0.57 (n=15 mgmt / 12 Q&A; 83rd pctile across the S&P book, z +1.0).

Flag: ELEVATED — management unusually upbeat vs the analyst floor relative to peers (disconfirmation watch).

News (last 365d, 789 articles): avg ticker sentiment +0.26 (bullish 40% / bearish 1%)

Consensus & Market Expectations

_Consensus figures: Alpha Vantage sell-side aggregates. Where the house view sits materially above or below the street, the divergence is itself a datum — see the thesis.

Catalyst Calendar

• 2026-10-22 (~44d) — Quarterly earnings — est. EPS $2.65 (AV EARNINGS_CALENDAR)

Forecast Track Record

• EPS surprise: beat 62% of the last 8 quarters; average surprise +9.3%.
• Prior-forecast backtest (19 snapshots, 2026-07-21→2026-09-03): directional hit-rate 26%; mean predicted +4.1% vs realised -2.6%. Disconfirming track record is reported, not suppressed.

Catalyst Timeline

5 catalysts in the next 90 days (of 13 tracked). Importance 1–3; confidence 0–1.

_Sources: extended.catalysts, data/catalysts/.json, data/catalysts/macro.json, AV DIVIDENDS, opex 3rd-Friday calc.

Scenario Macro & Key Risks

Decision Rules (Machine-Checked)

Stance: Hold — 0 bullish / 1 bearish / 0 caution rules triggered of 6 evaluable (0 lacked data).

Machine-checked rules over disclosed inputs. The authored falsification triggers elsewhere in this report are analyst judgment and are NOT evaluated here. The stance is a portfolio-management signal and does not modify the published research rating.

Reasons the Thesis Could Fail (Falsifiable)

Pre-registered signals that would break the thesis — each polices a specific scenario boundary and is checked at every earnings update:

• Organic revenue growth / order backlog < flat-to-negative for two consecutive quarters (2 consecutive prints). Sustained demand rollover breaks the base case toward the recession scenario.
• FY revenue ($B) < 4.0 (next reported fiscal year). (rationale withheld pending re-authoring — frozen figure or verdict)
• Probability-weighted fair value (PWEV) at the next re-run < 151.01 (any scheduled re-run). (rationale withheld pending re-authoring — frozen figure or verdict)

Fact / Inference / Speculation

• FACT: Spot $151; 52-week range $138–$189; engine rating HOLD; house target $162 (+7%). (source: Alpha Vantage 2026-09-08, 9 September 2026)
• INFERENCE: Triangulated FV $140 (-7% vs spot · triangulated FV); the rating tracks the Monte-Carlo + scenario-PWEV core; the cash-flow anchor sits below the multiple-discipline core.
• SPECULATION: At current prices the embedded bet is that Gross Margin keeps surprising favourably — an operating call the next two prints will test.

Conviction Score

Research Conviction measures the strength and quality of the research setup — input coverage, financial quality, valuation support, process agreement. It is NOT the probability that the recommendation succeeds; the forecast track record section is the evidence on that.

55.4/100 (confidence band 46.6–64.2), 41st percentile of 893 covered names (as of 2026-09-08). Weighted composite under config ros-1.20.0 — every component and its inputs below.

Score history: 55.4 → 55.4 → 55.3 → 51.2 → 55.3 → 54.8 → 55.5 → 55.5.

Probability-Weighted Return Profile

Horizon: 1 year — at this horizon CAGR equals total return by definition. Expected values are the probability-weighted sums over the full scenario set below.

The gross expected return is the probability-weighted scenario return (it reconciles to the gross PWEV); the diluted figure applies the SBC share-count charge and matches the published PWEV-based target.

Expected Alpha

Expected return minus the return this name is REQUIRED to deliver for its risk (1-year horizon). Constants are pre-registered (preregistered-static (amendment #2, 2026-07-29); not fitted to MCH outcomes).

A negative expected alpha does not change the rating — it says the expected return does not clear the risk-adjusted hurdle at today's price. Rating mechanics are unchanged by this section.

Probability Cross-Checks

Not authoritative. The scenario probabilities in this report are AUTHORED — a judgement about how the world might go, not a measurement. Nothing below modifies them, the target, the rating or any position size. These checks ask only whether anything outside our own model agrees with us; where it does not, that is information for the reader, not a correction we have quietly applied.

Authored set: 5 scenarios, probabilities summing to 1.0, mean target $161.5.

Factor Exposures

Cross-sectional percentiles over 893 covered names (style scores sector-demeaned; thematic = return-beta to the theme's proxy ETF). 50 = estate median.

Market interaction: correlation vs SPY +0.11, vs QQQ +0.03 (trailing ~1y daily returns).

Options Intelligence

Preferred structure: Covered Call. The selector reads the equity view (direction) and the volatility surface — nothing here re-prices the chain.

• range-bound with rich premium — harvest elevated vol against a holding (a covered call); an iron condor sells both wings if unhedged
• Direction neutral from the overlay conviction/rating (read-only input).
• IV/RV at the 90th percentile of the cross-section → high vol bucket. This is the measure that selects the structure above: it ranks how rich this name's implied vol is against its own realised vol, relative to other names.
• Reported alongside and not used to select: this name's own ATM IV sits at the 83rd percentile of its own month-end history (decile 9).
• IV term structure is in contango (longer-dated richer, slope +3.9pp) — favour longer-dated ownership (LEAPS) or calendars that are long the cheaper front.

IV term structure (contango, slope +3.9pp): 38-DTE 36% · 101-DTE 40% · 192-DTE 40%

Economics copied verbatim from the options overlay (priced from the listed chain (EOD marks)); the selector does not re-price.

Alternatives: Iron Condor, Cash-Secured Put. IV rank shown via the name's own monthly IV history (advisory); structure selected on the cross-sectional IV/RV percentile. Model output for research and education only — not individualised investment advice. Position-sizing and stance figures are mechanical outputs of the disclosed rules and inputs; they do not consider any person's objectives, financial situation, or tax status.

Position Sizing Framework

Model output for research and education only — not individualised investment advice. Position-sizing and stance figures are mechanical outputs of the disclosed rules and inputs; they do not consider any person's objectives, financial situation, or tax status.

Options Overlay

A defined-risk way to express the HOLD equity view. Chain as of 2026-09-08 — end-of-day marks — indicative, not executable quotes.

Market signals — ATM IV 35.6% (elevated regime) · expected move ±9.1% (2026-10-16) · put/call OI 0.92 · ATM Δ 0.56 / Θ -0.10 / ν 0.19 · next earnings 2026-10-22. Direction: NEUTRAL (implied return -7.2% to triangulated fair value $140.09).

Covered Call (if held) (Income / neutral) — Short 160 C · 2026-10-16 · premium $3.53 · yield 2.3% · priced from the listed chain (EOD marks)

Converts a near-fair holding into income by agreeing to sell at a higher strike — worth weighing when upside looks limited near fair value and being called away is acceptable. Elevated implied volatility currently enriches the premium collected. Illustrative — no outcome is implied or guaranteed.

Put Spread (income) (Income / would-own) — Short 140 P / Long 130 P · 2026-10-16 · net $2.42 · net entry $137.59 · yield 1.7% · RoR 32.0% · max loss $7.58 · priced from the listed chain (EOD marks)

Gets paid to wait for a lower entry, with the tail capped: the sold put collects premium while the cheaper long wing below it caps the maximum loss at the spread width — a defined-risk alternative to a naked cash-secured put.

Protective Collar (if held) (Hedge) — Long 135 P / Short 165 C · 2027-03-19 · net $4.35 · floor -11.0% · cap +9.0% · priced from the listed chain (EOD marks)

For a holder who wants to stay invested but cap risk: the sold call funds most of the protective put, fencing the position into a band — a way to ride out a de-rating without selling.

Indicative options structures — a defined-risk expression of the equity view, model-and-market illustrated from the last-close chain. NOT personalised advice or an executable quote; premiums, IV and greeks move intraday. Options carry the risk of total loss of premium. Not a registered financial adviser.

Rating Bridge

Rating = HOLD because:

• Probability-weighted scenario value implies +7% vs spot
• Monte Carlo median implies -6% vs spot
• DCF fair value implies -18% vs spot
• Bear case (Structural — AI / Data-Disintermediation Risk) downside is -46% vs spot
• Net: the valuation anchor itself sits 7.2% below spot, so there is no reward leg to weigh against the bear case and the reward-to-risk ratio is withheld rather than computed off a negative upside. The rating is not asymmetric enough for a Buy and not impaired enough for a Sell — hence Hold.

Model Appendix

DCF — line items

FCF is bridged: NOPAT + D&A − Capex − ΔNWC (capex intensity 3% of revenue, weighted from the segments) — not a single conversion fudge.

WACC 8.5% · Σ PV(FCF) $1B + PV(terminal) $3B = EV $5B; − net debt $0.8B → equity $4B ÷ diluted shares $0.03B = $124/share (exit-multiple terminal).

• Gordon terminal at 2.5% → $131/share — a genuinely non-multiple, cash-based cross-check; the exit-multiple and Gordon values bracket the terminal-value risk.
• Incremental ROIC on the forecast capex ≈ 10% vs WACC 8.5% → above WACC — the build is value-creative.

Peer set

Implied prices at the peer medians: EV/Rev → $578 (no P/E-implied price — no forward-EPS basis at the peer step).

Weighted fair-value math

Assumption Register

Sensitivity-ranked drivers (widest fair-value swing first): Op margin ±3pp (107.0); Terminal × ±15% (34.0); Revenue CAGR ±3pp (31.0); Capex intensity ±15% (21.0); WACC ±1pp (12.0).

Inputs, Sources & Confidence

Every load-bearing input, labelled by type and confidence. (reported fact · company guidance · consensus estimate · market data · house estimate · inference.)

Research Provenance

Load-Bearing Assumptions

DCF: WACC 8.5%, terminal multiple 16×, FY+5 revenue $5B. Triangulation leans 47% on DCF, 33% on PWEV, 20% on the Monte Carlo median.