The Problem With Accenture? You Probably Don't Know About It

Last Friday, Accenture (NYSE: ACN  ) stock jumped 4.5% after the company beat earnings expectations yet again and raised guidance. Investors cheered the company's results, outlook. and impressive financial ratios.

Well, institutional investors did, anyway. They own about 82% of the company. Even with a market cap of about $35 billion, the stock is not well known among individual investors.

And that's their loss.

Checking all the right boxes
Accenture has significant international exposure and a growing dividend, and it regularly beats earnings estimates. Its client list is a Who's Who of Global 1000 companies. And it has a talented and deep management bench. IBM's (NYSE: IBM  ) services business would like to be more like Accenture. That's quite a compliment, considering most large tech players want to be more like IBM.

Earnings per share of $0.75 for Accenture's most recent quarter beat the consensus estimate of $0.72 and grew 25% year-over-year. It's Accenture's 13th earnings beat in 14 quarters. With two quarters left in the fiscal year, management guided fiscal 2011 EPS up by $0.14 to between $3.22 and $3.30, an increase of 21% to 24%. Revenue of $6.5 billion increased 17% year over year. New bookings were $7 billion.

Accenture's financials compare favorably with other major providers of IT services -- IBM, Hewlett-Packard (NYSE: HPQ  ) and Computer Sciences (NYSE: CSC  ) -- and hold their own versus other large tech companies.

Growth Over the Past Four Quarters

Company

Revenue Growth

EPS Growth*

Net Margin

ROE

Accenture

11.0%

26.2%

8.0%

60.2%

IBM

4.3%

15.1%

14.9%

64.9%

Hewlett-Packard

8.8%

18.0%

7.2%

22.0%

Computer Sciences

1.0%

(13.5%)

5.1%

12.0%

Apple

63.3%

74.6%

21.8%

36.8%

Microsoft

13.6%

28.8%

30.8%

44.3%

Google

24.0%

28.9%

29.0%

20.7%

*Excluding extraordinary items.
Source: Capital IQ, a division of Standard & Poor's.

Company

Trailing P/E

Forward P/E

Forward Dividend Yield

Accenture

17.6

15.6

1.7%

IBM

13.8

12.2

1.6%

Hewlett-Packard

8.9

8.2

1.1%

Computer Sciences

9.1

9.1

1.7%

Apple

19.3

14.3

N/A

Microsoft

10.9

9.7

2.5%

Google

19.7

16.9

N/A

Sources: CNBC.com and Yahoo! Finance, as of March 25 close.

It's no surprise that Accenture trades at a premium to competitors. Accenture is well positioned to benefit from an improving economy because of its exposure to project-based work and strong customer relationships. CSC has high exposure to government clients and is suffering from budget cuts in that sector. In its most recent quarterly report, HP -- which acquired services goliath EDS in 2008 -- cited its services business as an area for improvement.

IBM is the competitor that worries Accenture, but even mighty IBM saw low-single-digit revenue growth in its services business last quarter. As much as I admire IBM and like IBM stock -- especially at its current valuation -- Accenture is plain and simple out-executing its competitors.

Foolish takeaway
Accenture is a well-managed company with a global presence. It's taking market share and benefiting from an improving economy. The people on its management acts like the owners they are, which is a plus for shareholder value. Individual investors would be well served to take a look at this little-known company.

To stay updated on Accenture or any other company mentioned in this article, add them to our free My Watchlist service today:

Fool contributor Cindy Johnson owns shares in Microsoft. 

Accenture, Google, and Microsoft are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers pick. The Fool has written puts on Apple, which is also a Motley Fool Stock Advisor recommendation. Motley Fool Options has recommended a bull call spread position on Apple and a diagonal call position on Microsoft. The Fool owns shares of Apple, Google, IBM, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (1) | Recommend This Article (7)

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 March 28, 2011, at 6:16 PM, Fred4953 wrote:

    Why Not???

    ACN doesn't have to pay Uncle Sam on its worldwide income, since it jumped first to Bermuda, then to Ireland...

Add your comment.

DocumentId: 1465715, ~/Articles/ArticleHandler.aspx, 7/22/2014 3:45:26 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement