Health care is hot these days. Hospital stocks are sizzling. Pharmaceutical shares are soaring. But there's another way to ride the health care wave. My recommendation is to consider buying Accenture (ACN 0.20%) stock as a health care investment. Here's why.
Accent on health care
Sure -- Accenture is a global consulting firm with its fingers in many different industries. Health care just might be the strongest niche for the company, although a cursory glance at Accenture's revenue probably doesn't give that impression.
Source: Company 10Q filing.
In terms of revenue, the company's Health & Public Services business segment stands as the smallest. Consider, however, that over the most recently reported six-month period, the segment's revenue growth rate of 12% was by far the strongest. Financial Services and Products revenue increased by 7% and 4%, respectively. However, Accenture's other two major segments actually lost revenue. If these growth rates persist, Health & Public Services will go from the company's smallest line of business to its biggest by the end of the decade.
What's more is that the profitability of Health & Public Services is also growing more quickly than any other area. During the six months ended on Feb. 29, 2012, the segment's operating margin stood at 10%. Fast-forward to 2013 and that margin jumped to 14%. That's a huge shift in the right direction.
Interestingly, Accenture is accomplishing all of this growth with relatively few staff in its health care business. The company reports around 15,000 employees focused on health care out of its total of 257,000 employees worldwide. In other words, less than 6% of its headcount generates 17% of its net revenue. Not bad.
Medical melee
Accenture doesn't have the health care consulting pie all to itself, of course. Several other major players vie for a part of the market.
IBM (IBM 0.18%) probably ranks as the most significant publicly traded rival to Accenture in the health care field. While Big Blue doesn't report revenue for health care, the industry is an important area of focus for the company. In 2011, IBM counted more than 8,000 staff dedicated to health care. That number is likely a good bit higher now.
Like Accenture, IBM's customers include health care providers and health plans. One technology where IBM competes especially strongly is data analytics. The company also has pioneered use of artificial intelligence applied to health care with its Watson.
Another smaller competitor with a foothold in health care is Cognizant (CTSH 0.37%). In 2012, Cognizant generated $1.9 billion from its health care segment, representing more than 26% of its total revenue. That figure also reflects a 19% jump compared to the prior year.
Cognizant has beefed up its presence in the health care market as well. In late 2012, the firm acquired Medicall, which provides outsourced clinical operations. This purchase brought more than 600 U.S.-licensed nurses based in the Philippines into the Cognizant fold.
Accenture appears to be in good shape to hold its own in the fight for market share. The company continues to see solid growth both in consulting and outsourcing across multiple geographic regions.
Smart pick?
There are lots of great health care investment alternatives available. The nice thing about buying Accenture stock is that it allows shareholders to profit from gains in nearly every part of the industry -- payers, providers, government, and life science organizations.
Accenture stock has performed quite well recently. Shares are up 17% year-to-date and 38% over the past 12 months. Despite the solid run-up, the stock's price-to-earnings multiple still falls right in line with its range over the past three years.
Analysts project earnings growth for Accenture over the next five years will be even better than the past five years. I suspect they're right. The company's large number of professionals with industry expertise should help it keep gaining additional customers worldwide. All factors considered, buying Accenture stock looks to be a pretty smart health care play.
