The turnaround business could be about to turn around.

While the downturn in corporate America has left big, publicly traded consultants spinning their wheels, a growing belief among investors that demand for their services is about to explode has led to a rally in the sector. Consulting juggernaut

Accenture

(ACN) - Get Report

, for one, has been on a tear, outpacing the market since the Sept. 21 bottom on hopes that its cost-cutting know-how is the right medicine for early recovery.

"We think it's one of the best-positioned companies to directly address cost-savings demand," said Prakash Parthasarathy, an analyst at Banc of America Securities, who has a buy rating on the stock. "Their strength relative to others in the sector is their ability to provide real cost-savings initiatives to companies."

Accenture's shares have soared 87% since Sept. 21, compared with the 18% gain in the

S&P 500

. The stock spiked on Oct. 11, after the company posted fourth-quarter earnings that beat the consensus estimate by a penny, and affirmed analysts' estimates for fiscal year 2002. Accenture, which went public earlier this year after splitting with accounting firm

Andersen

, attributed the profits gains to strong demand for its outsourcing services in a tough operating climate.

Wall Street, with its eye on an economic recovery next year, has also bid up the stocks of rival firms.

KPMG Consulting

(KCIN)

has gained 60% while data management firm

Electronic Data Systems

(EDS)

, which owns management consulting firm A.T. Kearney, has risen 23% in the same period.

Meanwhile, tech consultancy

Perot Systems

(PER) - Get Report

has gained 34%. And

Keane

(KEA)

is up 32%.

"We'll be using these stocks to play the resurgence in demand in the later half of 2002," said Parthasarathy, whose firm participated in Accenture's initial public offering earlier this year.

Cost-Benefits

Current demand for consulting remains soft. These are firms that in good times offer everything from new business development programs to tech consulting and software implementation -- much of which is now seen as an unjustifiable luxury best carried out from within, if at all.

"In the past, any growth in the sector relies on a major growth spurt" like the Y2K bug, said Jack Weiss, analyst at Soundview Technology. "Today, there's no compelling tech event to drive customer spending," he said, noting that billing rates have fallen significantly as consultancies vie for new projects. Back in the third quarter of last year, billing rates were around $172 an hour, compared with current estimated rates of $130 to $135 an hour, Weiss said. {Soundview Technology was involved in Accenture's IPO).

The best-case scenario for such companies, and the one that's occurring to investors, is that the country's

aggressive austerity drive will force the sector to adapt. Already, companies are now hiring them with an eye to business and management efficiency.

"Companies have invested a lot of hardware and software infrastructure over the last few years, and are now focused on integrating them and deriving maximum cost benefits from those investments," Parthasarathy said. Accenture, which derives a little over 50% of its business from the U.S., has been "gaining a lot" from this demand for "merger integration," he said.

Besides software implementation, Accenture also has been helping companies adapt to new realities, such as devising a better marketing plan, said Weiss. And following Sept. 11, there also has been a demand for business security and continuity services, he said. The company garnered more than $1 billion in new bookings for both September and October, with a greater percentage of bookings from outsourcing in October, Weiss said.

He and others note Accenture's own successful cost management. "The partners have agreed to forgo bonuses if necessary to meet earnings targets," Weiss said. Between June and August, Accenture announced it was laying off 2,900 employees.

Valuations

The stock is now trading at a 10% to 15% premium to the average IT services company, said Gary Dean, analyst at Robert W. Baird & Co., who maintains a market outperform rating on the stock. Dean said he expects relatively flat revenue growth for Accenture next year, as a lot depends on how the broader economy fares.

Dean has strong buy ratings on Keane, Perot and Electronic Data Systems; all three are projecting at least 15% earnings growth next year, but they trade at a slight discount to Accenture. (His firm hasn't done any underwriting.)

"

Accenture's stock now trades at about 24 to 25 times forward fiscal 2002 estimated earnings, and granted that's somewhat rich compared to the rest of the sector," said Weiss. "But we're dealing with a P/E that's based on a reasonable 'e,'" Weiss said. "For defensive or value-oriented investors, Accenture shares offer relatively limited downside risk over the next quarter or two."