Accenture: Strong Final Quarter And Outlook Swings Shares To New Highs

| About: Accenture plc (ACN)

Shares of Accenture plc (NYSE:ACN) rose more than 7.1% in Friday's trading session. The management consulting and outsourcing company reported strong fourth quarter earnings.

Fourth Quarter Results

Accenture reported fourth quarter revenues of $6.84 billion, up 2% compared to last year. Excluding the negative impact of a strong US dollar, revenues rose 9%. Revenues beat analysts consensus of $6.75 billion.

Net income fell 7% from $683 million last year, to $636 million in the fourth quarter of 2012, as a result of higher tax rates. Earnings per share fell just three cents to $0.88 per share, as the company repurchased for $2.1 billion in shares over the past year. Earnings beat analysts consensus by a penny.

For the full year of 2012, revenues rose 9% to $27.9 billion, up 11% on a constant currency basis. Diluted earnings per share rose by 13% to $3.84.

CEO Pierre Naterme commented on the results:

"We are very pleased with our financial results for fiscal 2012, which met or exceeded our business outlook for the year. Our revenue growth was strong and broad-based across the different dimensions of our business, and we increased EPS by 13%. Our balance sheet remains very strong, with a cash balance of $6.6 billion. We also achieved record new bookings of $9.2 billion for the fourth quarter, bringing us to $32.2 billion for the year, our highest ever."

Segmental Information

Consulting revenues fell 4% on the quarter to $3.74 billion. In constant currencies, revenues increased by 2%. Consulting bookings came in at $4.30 billion, resulting in a book-to-bill ratio of 1.15.

Outsourcing revenues rose 10% to $3.10 billion, up 18% in constant currencies. Outsourcing revenues came in very strong at $4.90 billion, for a book-to-bill ratio of 1.58.

Revenues in the Americas rose 5% to $3.2 billion, up 8% in constant currencies. Revenues in Europe, Middle-East and Africa fell 4% to $2.6 billion, up 8% in constant currencies. Revenues in the Asia-Pacific region rose 11% to $1.1 billion, up 14% in constant currencies.


For the first quarter of its fiscal 2013, Accenture expects net revenues of $7.10-$7.35 billion, assuming a 3% negative impact from foreign exchange rates.

For the full year of 2013, the company anticipates net revenue growth between 5 and 8% in local currencies. Accenture assumes a 1% headwind from unfavorable exchange rates for the entire fiscal 2013. Operating margins are expected to increase by 10-20 basis points to 14.0-14.1%.

Full year diluted earnings per share are expected to come in between $4.22-$4.30. On average, analysts expected Accenture to guide for annual earnings of $4.17 per share.


Accenture ended its fourth quarter with $6.6 billion in cash and equivalents. The company operates without the assumption of debt, for a comfortable net cash position.

For the full year of 2012, Accenture generated annual revenues of $27.9 billion. The company net earned $2.8 billion, or $3.84 per diluted share. After the 7% jump on Friday, the market values the firm at $48.2 billion. This values the operating assets at $41.6 billion.

As such the market values Accenture at 1.5 times annual revenues and 15 times 2012s annual earnings. Currently, Accenture pays a semi-annual dividend of $0.81 per share, for an annual dividend yield of 2.3%.

Investment Thesis

Year to date, shares of Accenture have risen some 32%. Shares rose from their low fifties in January to $66 in March of the year, after Accenture gave an upbeat outlook for the third quarter. Shares fell back to $55 during the summer, but rose to new all-time highs of $70 on the back of the strong results on Friday.

Over the past five years, shares have risen some 75%. Shares steadily rose from lows of $27 in 2009 to $70 in 2012. Between 2009 and 2012, Accenture grew its revenues from $23.2 billion to $29.8 billion. Net income rose from $1.6 billion to $2.6 billion over the same period. Earnings per share rose from $2.44 to $3.84, as Accenture retired roughly 8% of its shares outstanding over the time period.

I think shares are reasonably fairly valued. The company has a very strong balance sheet, yet it has not shown much interest in making large acquisitions or significantly boost its dividend yield. The company did spend $2.1 billion on share repurchases over the past year.

With shares trading at all time highs, I see few triggers for further gains in the short run. A significant dividend increase or large acquisition, could propel shares higher in the short run. Despite the very strong balance sheet, I suspect both scenarios are not very likely in the near term. Accenture has demonstrated that it favors share repurchase programs over large dividend increases in the past.

I stay on the sidelines for now. I will wait for a significant pullback in the shares, and watch how the company makes use of its strong balance sheet.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.