Foolish Forecast: Everybody Loves Accenture

Motley Fool Inside Value recommendation Accenture (NYSE: ACN  ) reports third-quarter earnings Thursday night. Let's see what's in store for the IT-consulting specialist.

What Fools say:
Here's how Accenture's CAPS rating stacks up against those of some of its peers and competitors:

Company

Market Cap (billions)

Trailing P/E Ratio

CAPS Rating (out of 5)

International Business Machines (NYSE: IBM  )

$175.6

16.7

***

Hewlett-Packard (NYSE: HPQ  )

$116.6

15.9

****

Accenture

$22.7

15.6

*****

Electronic Data Systems (NYSE: EDS  )

$12.1

20.1

**

BearingPoint (NYSE: BE  )

$0.19

N/A

*

Data from Motley Fool CAPS as of June 25.

Judging by input from our CAPS players, Accenture is the top dog in its pack. Roughly 95% of the 879 players who have issued a rating on the stock gave it a thumbs-up. Their reasons vary from fundamental strength to strong cash flows, though the bearish minority points out that high-cost consulting services might not attract much business in a weak economy.

What management does:
While the standard profit margins look stable enough, and sales growth has picked up a bit lately, the all-important cash-generation machine seems to need some oil.

Margins

11/2006

2/2007

5/2007

8/2007

11/2007

2/2008

Gross

27.1%

28.9%

28.6%

28.2%

28.2%

28.2%

Operating

10.0%

11.9%

11.7%

11.7%

11.8%

11.7%

Net

5.5%

6.5%

6.3%

5.8%

6.0%

6.2%

FCF/Revenue

11.5%

11.2%

11.6%

10.6%

9.1%

8.8%

Growth (YOY)

11/2006

2/2007

5/2007

8/2007

11/2007

2/2008

Revenue

7.3%

9.5%

11.7%

17.7%

18.8%

19.2%

Earnings

8.7%

55.0%

48.7%

27.7%

28.5%

14.2%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
With HP buying EDS, the consulting sector is consolidating at the moment. While Accenture's $23.3 billion market cap makes for a rather large sweetmeat in the eyes of prospective suitors, it is a well-managed business with some of the lowest P/E and PEG ratios in the industry. A nice cash balance brings down the enterprise value to about $20 billion, which puts the company in a price range that someone like Big Blue might be able to afford.

A buyout today still looks like a long shot, despite strength in the sector and lots of cash floating around in the competition's coffers. I'm hoping to see an end to the downward trend in cash flow margins this time, to underpin the company's strong balance sheet further. Do that for a while, and maybe then the courtship dances will start.

Accenture is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days.Or just sign up for a free CAPS account to find out more from your fellow Fools quoted above!

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is the Punxsutawney Phil of financial forecasting.


Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 26, 2008, at 2:16 PM, EnPassant105 wrote:

    (1) Stating that the consulting sector is consolidating just because HP buys EDS is simplistic and uninformed. Did someone buy Hitachi while I was on vacation? Did BearingPoint join forces with one of the India power plays? Let's be a little more careful with the size of the brush when painting the picture.

    (2) The suggestion that Accenture is going to get bought up by another firm possibly fits into the category of "journalistic tripe." Anyone would like to see an end to the downward trend on cash flow -- but that doesn't mean IBM would start thinking about making a run at it. If so, why didn't IBM make a run at them a year ago? Again, let's use a smaller paintbrush.

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