- The earnings and guidance of Accenture are not attractive.
- Intense competition in the industry is putting pressures on pricing, and weak global economic growth conditions diminish any hopes on a fast increase in new contracts.
- Investment in shares should be avoided for some time to consolidate.
Accenture plc (NYSE:ACN) posted earnings for the third quarter of fiscal 2014 that are not overwhelming or discouraging from an investor point of view. ACN generated net revenues of $7.74 billion, an improvement of 7% from the same period last year, surpassed the company's guided range of $7.40 billion to $7.65 billion. Earnings per share grew to $1.26 from $1.21 for the third quarter last year, which improved by 4%, beating analyst estimates by $0.05.
ACN paid a total dividend of $1.86 per share for the current fiscal year and repurchased and redeemed 24.4 million shares in the first three quarters of fiscal 2014.
For Accenture to generate double-digit growth in revenues, either it needs accumulate more new contracts or it has to charge higher prices for its services. Global economic conditions have not changed significantly positive for Accenture to charge higher prices or to seek more contracts. Further, the global economic outlook for 2014 has been cut by the World Bank due to a weak start to the year in both developing and developed economies. Slow global economic growth reduces the clients' spending on services and solutions provided by Accenture, which decreases its revenues. ACN reduced its upper range of net revenue growth expectations from 6% to 5% for fiscal 2014.
Extreme competitive pressures from competitors that are operating from low cost environments are giving tough competition, forcing Accenture to keep the prices low. This is a great disadvantage for companies like Accenture in terms of profitability.
For the fourth quarter of fiscal 2014, Accenture expects net revenues to be in the range of $7.45 billion to $7.70 billion, including a positive impact of foreign exchange by 1.5% compared with the fourth quarter of fiscal 2013.
The company expected net revenue growth to be in the range of 4% to 5% in local currency for fiscal 2014; earlier it expected 3% to 6% net revenue growth. ACN expects its earnings to be in the range of $4.50 to $4.54, rather than $4.50 to $4.62 previously expected.
ACN is trading at 18.83 times earnings (TTM) and 9.77 times book value (mrq); that is a high valuation for a company that is posting mid-single digit growth numbers in terms of revenue and earnings. The mounting growth concerns due to intense competition and weak global economic conditions cannot justify the valuation at which ACN is trading. If I were supposed to put my money in the equity market, ACN would not be one of the choices.