The stock of Accenture Ltd. (ACN) has had a great run over the last couple of years as the company has grown earnings and repurchased shares. As the stock has nearly doubled, the buybacks have stalled leaving the company with less bang for the investment.
As one of the world's leading management consulting, technology services and outsourcing organizations has seen earnings nearly double in the last few years, the stock has seen strong gains.
The company, though, hasn't been able to increase the buyback amount and in fact spent less in fiscal year 2012 versus 2011. All signs that the insiders with the best information might consider the stock price expensive.
Q1 2013 Earnings Highlights
The company reported the following highlights for the Q1 2013 earnings report:
- Revenues increase 2% in U.S. dollars and 5% in local currency, to $7.2 billion
- EPS up 10%, to $1.06
- Operating income increases 7%, to $1.05 billion, with operating margin of 14.5%
- New bookings are $7.5 billion, with consulting bookings of $4.2 billion and outsourcing bookings of $3.3 billion
- Company raises outlook for full-year EPS to range of $4.24 to $4.32
The company slightly beat analysts' earnings estimates of $1.04 by $0.02. The revenue guidance going forward though disappointed the market. A big concern is that revenue only grew 2% during Q1.
Net Payout Yields
The company was a strong net payout yields stock back in 2011 as the buybacks comprised a higher percentage of the outstanding shares. During Q1 the company bought 3.3M shares for a total of $221M. The company has $4.05B remaining on the share repurchase plan suggesting the company sees limited value if it only utilized 5% of that authorization amount. The dividend yield remains a solid 2.3%.
The net payout yield comprises the dividend yield and the net stock buyback yield. As with dividend yields, a high yield suggests the stock might have an attractive value.
The below chart highlights the buybacks by quarter compared to the share price:
As the chart shows, the buyback amounts have remained flat while the stock continues to surge.
The stock hit a double top at just over $70 this week. It snapped back on Thursday after an initial plunge to $66 to close at $69. The stock has had a solid return over the last two years leading to the possibility of a peak.
6-Month Chart - Accenture
The company announced the expectations of spending $3.3B on returning cash to shareholders in 2013, yet it only spent a meager $221M on buybacks during Q1. A net payout yield over 7% would be very solid, but the current level of buybacks suggests the stock price in the upper $60s was too expensive for the company to buy.
Investors might want to pass on this stock for now until more attractive entry levels present itself in 2013.
Additional disclosure: Please consult your financial advisor before making any investment decisions. ACN was a long-term holding of the Net Payout Yield model before selling the stock in early December.