Friday's Top 3 Large Cap Gainers: What to Expect Going Forward

 |  Includes: ACN, VLO, XRX
by: Rash Menaria

The following is a list of top 3 Large cap gainers from Friday:

Company Name


% Gain

Accenture Plc



Xerox Corporation



Valero Energy Corporation



Click to enlarge

Here are some of the specifics about these stocks and what to expect from them going forward:

Accenture Plc (NYSE:ACN) gained 4.48% on Friday after showing impressive performance in its F2Q11 results. It reported revenues of $6,054 mn (up 18% YoY) and EPS of $0.75 (up 19% YoY) as compared to the consensus estimate of $5,768 Million and $0.71, respectively. The current growth is the highest level of growth since 2001. Its consulting bookings increased by 2.1% on Quarter over Quarter basis, while outsourcing bookings increased by 23%.

Current Quarter results indicate strong demand for IT services as the global economy continues to recover. Further, cloud computing, virtualizations, etc. are the secular drivers for Accenture, as clients are looking to modernize their IT organizations. The company is currently trading at a FY12e P/E of 15.4x. Although it is at a premium to IBM's 12x, it is still a significant discount to offshore IT players such as Cognizant (NASDAQ:CTSH) / Infosys (NASDAQ:INFY) / Wipro (NYSE:WIT) which are trading at an average PE of ~26x. Given the high growth rate Accenture is witnessing, there is a further scope of reduction of its PE discount vs. offshore IT companies. The stock is likely to outperform going forward.

Xerox Corporation (NYSE:XRX), a provider of document equipment, software and services, was up 4% on Friday. The company is trading at 9.7x FY11e PE and 8.4x FY12e PE, which is low given its expected high teen EPS growth rate for the next couple of years.

Although there are some concerns over its Government services revenues (~15% of total revenues) as some Government stimulus programs end in June; the company can easily compensate that by expanding in other areas like IT consolidation and cloud computing projects for state governments, and fixed price outsourcing contracts for federal agencies.

We believe that stock is likely to be a good investment from medium to long run perspective. Last year, Barron's published a cover story on Xerox, giving reasons why its stock price can double going forward. It is still a good read for investors looking to invest in Xerox from a long term perspective. (The stock was trading at $9.11 then and is now at $10.67).

Valero (NYSE:VLO), an oil refining company, gained 3.96% on Friday. A couple of weeks back it announced an EPS accretive acquisition of Chevron's (NYSE:CVX) Pembroke refinery in Wales, U.K. and marketing and distribution assets in the U.K. and Ireland. The acquisition will increase the EPS of the company by $0.25 to $0.35 dollars annually. The company is currently trading at a forward P/E of 8-9x, which is ~20% discount as compared to its peers (independent refiners) on P/E and P/CF basis. Given the low valuations, the stock appears to be a good buy and is expected to outperform in the near to medium term.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.