Accenture Reaps Benefits of Slow Economy - Barron's

At least Accenture, a management consulting and technology outsourcing firm, has been benefiting from the current economic downturn. Companies looking to cut costs and streamline operations have contributed to the $6.77 billion in new bookings in Accenture’s recent FQ3. Yet Barron’s says the company has stayed under investors radars: They don’t realize Accenture (ACN) is the one doing all that corporate downsizing for all those companies now. Its 14 times forward P/E is lower than the 18 times forward P/E that industry rival EDS (EDS) was recently bought for. And Accenture has a strong balance sheet, with about $3.4 billion in cash and investments. It services 90% of all Fortune 100 companies, and is renowned for its dedicated corporate culture and seeing projects through to the end.

The blue-chip IT firm is thriving from helping U.S. companies realign while simultaneously enjoying strong global revenues. Accenture raised its 2008 guidance and forecasted a diluted EPS to $2.63-$2.65, up from its previous range of $2.55-$2.60. In FQ3, revenues jumped 20% while earnings rose 36% to $0.74/share. Analysts say the stock has a 20% upside to the high $40s, from $39.50 currently.

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In Accenture’s latest FQ3 earnings call, CEO William Green said: “We grew operating income 27% and expanded operating margin by 70 basis points. Along with that our balance sheet continues to remain strong. We generated tremendous free cash flow of more then $1 billion in the quarter and we are continuing to return cash to shareholders. We have been steadily building a formidable leadership position investing in our business and increasing market share… You look at China, we’re growing 40%. In Korea we’re growing in the 30%. If you just move around the business, you look at our business in even a small place like Amsterdam. I can remember when it was 200 people and now it’s close to 4,000.”

Kevin Maney says Accenture is apparently a good place to work. On a company rating website that grades CEO’s, employees gave Accenture’s CEO Bill Green a relatively high 67% rating. 

Hans Wagner rates Accenture the third largest IT company behind IBM (IBM) and now HP’s EDS. But Wagner notes Accenture is rapidly gaining market share and revenues are sharply up as demand for its services is so strong, it's been able to keep its prices high. Wagner notes one other thing going for Accenture: Independence. While IBM and EDS are wedded to certain products and technologies when helping other companies, Accenture has no such allegiances and so is free to choose which software or hardware actually is best for the client company.

 

Comments

[NJgolfer:]

Accenture's biggest challenge is going to be to keep the partnership units off the free market and causing massive dilution in the share price. Since they have the free cash flow and tons of cash on the balance sheet, they will be able to pull that off. While Financial Services in North America is struggling, everything else is doing extremely well.

2008 Jul 21 09:01 AM

[slim409:]

I think they have a lot more upside from here.

2008 Jul 30 11:59 PM

[eskebee:]

What about software development in the newly formed Sirius XM? I learnt you might lose the project. Is it true?

2008 Aug 15 10:41 PM