Accenture Plc (ACN): Can This Stock Deliver High Performance Yet Again?

Page 1 of 2

From its inception, Accenture Plc (NYSE:ACN) has always believed in doing things differently and living ‘The Accenture Way.’ It believes in its motto of ‘Be greater than’ symbolizing it with a ‘>’ sign over its logo. In its recent third quarter results, it toppled and failed to meet revenue expectations. However, upon closely looking at its plans, it shows how the company still stands out from its peers and has the potential of delivering high performance yet again!

Numbers delivered

Today we announced our third-quarter financial results. Overall, our results were solid, although consulting revenues were below our expectations. We again delivered solid new bookings and very good profitability, and we generated very strong free cash flow, said Chairman and CEO Pierre Nanterme.

Accenture Plc (NYSE:ACN)The company reported third quarter earnings last month. The revenue reported in the quarter was $7.2 billion, which was 3% growth in local currency over the same period last year. Whereas outsourcing revenue grew 7%, having flat revenue growth in consulting. This has resulted in missing the guided range of total revenues for the quarter.

The company has lowered its revenue guidance from a 5%-8% range to a range of 3%-4% in local currency, also narrowing down its EPS guidance from $4.89 – $4.97 to $4.90 – $4.94. Accenture Plc (NYSE:ACN) offers its shareholders a decent dividend yield at 2.1%, which is 2% higher than the dividend yield at International Business Machines Corp. (NYSE:IBM).

The chairman’s speech delivered

Nanterme points out the many areas where the company is performing extremely well with double-digit digit year-to-date growth, including Business Process Outsourcing. The participants being the United States, China, India and South Africa with technologies like mobility and cloud analytics and industries such as insurance, capital markets and health and life sciences. He also believes that the communication industry remains dynamic, and offerings around transformation are resonating with the clients showing strong double digit growth.

About the bad quarter, he explains:

We continue to operate in an uncertain and volatile economic environment, which has had an impact on our business. In particular, we have faced challenges in some areas of our business, such as consulting in Europe, Brazil and Resources.

But owing to the company’s plans and strategic acquisitions, he sounds confident regarding the current progress of the company. He summarizes it as follows

This gives me confidence that we are executing the right strategy and building from a very strong platform that includes our Diamond Client relationships, brand and industry expertise. I have no doubt that the services we provide, continue to be highly relevant to the needs of our clients.

Accenture, Broadridge jointly launch Accenture Post-Trade Processing

Accenture Plc (NYSE:ACN) and Broadridge Financial Solutions have recently launched Accenture Post-Trade Processing. The solution provides post-trade processing and technology services to support settlement, books and records, operational management and control, asset servicing, real-time data access and administrative accounting. This can prove to be a smart move for Accenture to help push revenue digits.

Accenture launches Accelerated R&D Services

It is a business service focused on delivering streamlined and integrated research and development functions helping pharmaceutical companies bring new medications to patients using a more collaborative and efficient approach. The company is investing more than $200M to deliver this fully-integrated, technology-enabled global business service.

To support the strategic R&D initiatives of more than 300 clients, Accenture Plc (NYSE:ACN) is working with a leading pharmaceutical company to build a first-of-its kind clinical data aggregation and exchange platform. This could be another feather in the hat for Accenture and subsequently beneficial for its investors.

Acquisitions and clients delivered

Accenture Plc (NYSE:ACN) is well positioned in the digital world, helping clients in businesses for decades now. It is a leader in the management consulting industry, and a constituent of the Fortune Global 500. Now, Accenture’s CMO wants integrated solutions strategy and analytics to add more value out of their investments. The following are the company’s recent strategic investments to improve its portfolio:

>Accenture Plc (NYSE:ACN) recently acquired Acquity Group for $316 million in its quest to become the panacea for the data-driven woes of CMOs. Acquity’s 600 employees will join AccentureInteractive. Acquity was named 2012 partner of the year by both Adobe and Hybris. A recent spate of acquisitions makes it evident that Accenture Interactive aims to present itself as a one-stop-shop for CMOs.

>It also purchased design consultancy and the second largest independent digital marketing company in the US, Fjord, just last month and digital production house avVenta in late 2012. This together expands its capabilities and position as a leader in the fast growing segment of the digital marketing.

>Also, BMW has selected Accenture Plc (NYSE:ACN) to manage a new web platform roll out around the world.

>In analytics and mobility, the company is helping a major airlines, providing a single comprehensive view of customer preferences for customer data from different touch points including PCs, phones and mobile devices.

>It has also indulged in a global alliance with General Electric for leveraging combined capabilities in big data, cloud, analytics and mobility.

It is clear that Accenture Plc (NYSE:ACN) is continuously innovating and delivering cutting edge solutions to its clients, thereby building a strong diversified portfolio.

Competition delivered

Accenture Plc (NYSE:ACN) is presently trading at $73.12 per share, having the highest forward earnings valuation of 16.7, compared to Oracle Corporation (NASDAQ:ORCL) and International Business Machines Corp. (NYSE:IBM). It also has the highest PE Ratio (TTM) of 73.12, whereas Oracle and IBM are just 14.40 and 14.02, respectively.

ACN data by YCharts

Oracle Corporation (NASDAQ:ORCL) has the lowest valuation among the three and is trading at $32.54 per share with a total market cap of $149 billion. In the recent fourth quarter earnings results, the company experienced a 9% decline in its hardware business, but a 4% increase in the software business revenue.

Looking forward, the company has plans to return $12 billion in cash to shareholders in a form of share repurchases. This will create a total yield of 9.55% for the shareholders. Oracle Corporation (NASDAQ:ORCL) has generated around $14 billion in operating cash flow thereby increasing its cash position to around $32 billion in the entire year. The market values Oracle at around 10.2 times its forward earnings.

Unlike Accenture Plc (NYSE:ACN) and Oracle Corporation (NASDAQ:ORCL), International Business Machines Corp. (NYSE:IBM) reported a positive growth last quarter, owing to the investments in cloud computing and software. It projects profit of $16.90 per share for the year, a 1.6% increase year-over-year. The company’s smart strategy of boosting dividends and share buybacks has helped in bringing this uptick. The company’s approach has definitely helped in yielding positive results, but Accenture hasn’t done the same yet.

IT services have always been a problem for Accenture Plc (NYSE:ACN). This is due to the fact that now customers do not go for short term commitments with Accenture as before. International Business Machines Corp. (NYSE:IBM) also recently acquired Softlayer in order to grow revenue with the big data trend, and companies transitioning to cloud computing. The company is trading at $197.35 at present.

Page 1 of 2