Can Accenture Earnings Crush IBM and Hewlett-Packard?

Accenture (NYSE: ACN  ) will release its quarterly report on Thursday, and investors haven't been all that certain about the consulting firm's ability to sustain its strong growth. As competition from IBM (NYSE: IBM  ) , Hewlett-Packard (NYSE: HPQ  ) , and other tech consultants poses an ongoing threat to Accenture's business, the company also has to deal with changing trends within the industry that will force it to keep shifting gears in order to keep up.

Accenture has a strong reputation for excellence in providing consulting services that help its customers make better use of technology. Yet Accenture has proven to be just as vulnerable as IBM and HP to trends toward less IT spending. Despite some signs that customers have shown increased demand for IT products and services, Accenture still needs to make sure it makes the most of any available business opportunity. Let's take an early look at what's been happening with Accenture over the past quarter, and what we're likely to see in its report.

Stats on Accenture

Analyst EPS Estimate

$1.09

Change From Year-Ago EPS

2.8%

Revenue Estimate

$7.25 billion

Change From Year-Ago Revenue

0.4%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Can Accenture earnings accelerate higher?
In recent months, analysts have cut their views on Accenture earnings, reducing November-quarter estimates by $0.03 per share, and reducing their projections for the 2014 and 2015 fiscal years, as well. The stock hasn't gone anywhere, falling 2% since mid-September.

Accenture didn't reassure investors with its August-quarter report, despite closing its fiscal year with record levels for revenue, earnings per share, operating margins, and new bookings. Accenture's guidance for the 2014 fiscal year raised concerns among investors, with earnings projections coming in below expectations, and sluggish revenue growth pointing toward ongoing challenges for the industry. Even a 15% dividend increase didn't keep shares from dropping after the report, with the results having confirmed some of the same trends that IBM and Hewlett-Packard had seen recently.

But Accenture has been aggressive about taking action to try to grow its business. In October, it agreed to buy the Procurian unit of ICG Group for $375 million, helping Accenture improve its stature in procurement consulting. The move makes sense for ICG as it aims to position itself as a cloud-consulting specialist, but it should also bolster Accenture's reputation for being a one-stop shop for general consulting services. That also goes with Accenture's completed takeover of product-lifecycle-management software consultant PRION Group, which will let Accenture reach out to customers in various manufacturing subsectors, both within and beyond technology, to help them improve their production processes.

The reason why it's so important for Accenture to widen its grasp across various customer groups is that, once a company signs on as a customer, it's likely to stay with Accenture for the long run. Accenture sports a solid retention rate, with 92 of its top 100 customers having been using the company for 10 years or more. Moreover, the stature of those clients makes it easier for Accenture to win new business by pointing to its past successes. It also makes it tougher for Hewlett-Packard and other new entrants to break into those client relationships, allowing Accenture to focus on main rival IBM, and getting IBM's customers to come to its side.

In the Accenture earnings report, watch to see where the company next plans to deploy its substantial free cash flow. Even if the industry's activity level remains weak for a while, it could actually prove to be a solid opportunity for Accenture to make business-enhancing strategic moves that could foster faster growth, helping it stay ahead of IBM and HP well into the future.

Another reason to like Accenture
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