Korn Ferry shares soar on analyst upgrade

Korn Ferry shares rise as analyst upgrades executive search firm on revenue prospects

• On 2:40 pm EDT, Monday October 26, 2009

HARTFORD, Conn. (AP) -- Shares of Korn Ferry International Inc. jumped Monday after an analyst upgraded shares of the staffing company on prospects of rising revenue.

Analyst Ty Govatos of C.L. King upgraded the Los Angeles company to "strong buy" from "neutral."

Korn Ferry and Heidrick & Struggles International, which conduct executive searches, are "some of the biggest laggards in the staffing group," Govatos said in a client note.

"The lag is likely due to one of the severest revenue declines in the sector, down 45 percent to 50 percent in just four quarters," he said. "Now, however, it appears revenues have not only flattened they are about to rebound. And as it did in the 2003 rebound, it could transform the search companies from laggards to leaders."

The two companies will benefit from searches they will be hired to perform for executives replacing baby boomers set to retire soon, Govatos said. Many companies require executives to retire at age 65 and the leading edge of baby boomers now is 63, he said.

Another factor is companies' response to stricter governance rules that benefit executive search firms such as Korn Ferry, Govatos said.

"The days of packing the board of directors with insiders and/or 'professional' directors are gone," he said.

A board of director's posting was once filled free of charge, but director slots now often command salaries of $150,000 or more, Govatos said.

"Finding directors is now a new source of fees for the search companies," he said.

Korn Ferry's shares rose $1.02, or 6.5 percent, to $16.52 in afternoon trading after touching a 52-week high of $17 earlier in the day.

Buzz up!