Foolish Forecast: Accenture Set to Please

Over the past two and a half years, Motley Fool Inside Value recommendation Accenture (NYSE: ACN  ) has scored a perfect 10 for earnings beats, missing nary a quarterly earnings target. On Thursday, these consultants turn in their fiscal second-quarter 2008 earnings numbers, and we learn whether this stock can go to 11.

What analysts say:

  • Buy, sell, or waffle? Twenty-one analysts follow Accenture, giving the stock 15 buy ratings and half a dozen holds.
  • Revenue. On average, they're looking for nearly 18% revenue growth to $5.6 billion.
  • Earnings. Profits are predicted to climb in tandem, up 19% to $0.56 per share.

What management says:
Boasting of "record net revenues across all five operating groups," and continuing to improve the profit margins earned on that revenue, Accenture got its fiscal new year off to a great start back in December. Then, perhaps figuring that actions speak louder than words, management showed just how confident it was in its future prospects by promising to buy back another $3 billion worth of its own stock.

So somebody please explain to me -- why is the stock down 4% from its post-Q1 earnings high?

What management does:
Seriously. That's not a rhetorical question. Accenture says its revenue will grow "9 percent to 12 percent in local currency." The weak U.S. dollar means that when translated into greenbacks, revenue grows even faster. And as the table below shows, Accenture is extracting more and more pennies from each dollar of revenue earned. It's more profitable than BearingPoint (NYSE: BE  ) or EDS (NYSE: EDS  ) , and not that far behind IBM (NYSE: IBM  ) -- which is also buying back stock, by the way. So what's not to like here?

Margins

8/06

11/06

2/07

5/07

8/07

11/07

Gross

27.4%

27.1%

28.9%

28.6%

28.2%

28.2%

Operating

9.8%

10.0%

11.9%

11.7%

11.7%

11.8%

Net

5.3%

5.5%

6.5%

6.3%

5.8%

6.0%

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:
Over at Motley Fool Inside Value, where we've recommended the stock, Fool analyst Michael Olsen conceded back in January that there may be some reason (subscription or free trial needed to access this link) for investor skepticism about Accenture, but refutes any assertion that this is a long-term threat to the stock: "While it's possible that crimped corporate budgets could hurt the shares in the near term, we remain confident in our valuation assumptions across the long term. In fact, we'd be inclined to give our valuation a nudge upward if Accenture can sustain its current levels of cash-flow growth."

What's that about cash flow, you ask? Well, if you'll look at its cash flow statement, you'll see that Accenture generated more than $2 billion in free cash flow over the last 12 months. That puts the stock's price-to-free cash flow ratio at just 11.4 -- versus 13.9% projected long-term profits growth. Call me a Fool, but I'm convinced that means Accenture is underpriced today -- and as you can see on CAPS, I'm putting my virtual money where my mouth is on this one.

What did we expect out of Accenture last quarter, and what did we get? Find out in:


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