On Wednesday, Truist Securities updated its outlook on Heidrick & Struggles (NASDAQ:HSII), increasing the firm's price target to $42 from the previous $40, while maintaining a Hold rating on the stock. The adjustment comes as the analyst evaluates the company's financial segments and market position.
Heidrick & Struggles, a company with a market capitalization of less than $1 billion, has been under scrutiny for its On-Demand Talent (ODT) and Consulting segments, which are currently showing marginal profitability or operating at a loss. Truist Securities has indicated an interest in a clearer timeline for when these segments might reach their margin targets.
The company's recent Investor Day shed light on its strategic plans, revealing revenue growth targets that align with existing market expectations and long-term EBITDA margin goals for its various segments. However, the analyst at Truist Securities expressed a cautious stance towards valuing Heidrick & Struggles' non-search franchises at this point in time.
In a statement, the analyst said, "Given Heidrick and Struggles size (< $1B market cap) and since On-Demand Talent and Consulting are slightly profitable to unprofitable segments, we would have liked to see timing of hitting ODT and Consulting segment margins."
The statement further elaborated on the company's financial targets and the rationale behind maintaining the Hold rating while lifting the price target, "HSII's Investor Day included (1) through-cycle revenue growth targets in-line with the Street and (2) segment long-term EBITDA margin targets. We remain cautious of ascribing significant value to HSII's non search franchises as of now. We reiterate our Hold rating, but raise our PT to $42 (from $40)."
This price target revision suggests a modestly increased expectation for Heidrick & Struggles' stock performance, albeit without a change in the overall investment stance from Truist Securities. The company's progress towards achieving its stated financial goals, particularly in the ODT and Consulting segments, appears to be a key factor for future evaluations.
In other recent news, Heidrick & Struggles International Inc. reported a 6% year-over-year increase in Q3 2024 revenue, reaching $279 million, with an adjusted EBITDA of $30.4 million. Executive Search segment revenue rose 3% to $204 million, and despite a dip in European revenue, the Americas and Asia Pacific regions showed significant growth. The company ended the quarter with a robust $409 million in cash, readying for strategic growth amidst market uncertainties.
CEO Tom Monahan emphasized the company's focus on organic growth and talent management for future success. The company anticipates Q4 2024 revenue to be between $255 million and $275 million. New Board members Vijaya Kaza and Tim Carter have been introduced, providing digital and financial expertise. Further details on the company's strategic growth initiatives will be shared at the upcoming Investor Day.
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