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Accenture's Minor Sell-Off Is A Buying Opportunity

Mar. 27, 2017 6:19 AM ETAccenture plc (ACN)15 Comments
Walter Zelezniak Jr profile picture
Walter Zelezniak Jr


  • Accenture's most recent quarterly numbers are reviewed.
  • Accenture has been busy in the month of March acquiring companies.
  • The recent sell off offers an opportunity.

Accenture plc (NYSE:ACN), had a very busy month. This article will review its most recent earnings release, look at its recent corporate activity, and take a look at how the market reacted to all of this news to see if there is an opportunity to either initiate a position or to add to an existing position in Accenture.

Earlier this week Accenture reported their numbers for the second quarter. In summary, Accenture had revenues of $8.76B, net income of $876.7M, and earnings per share of $1.33. In my previous article on Accenture, I stated that I was looking for $1.34 in earnings per share. Additionally, Accenture's management issued guidance of 6-8% revenue growth for FY 2017 and an earnings per share estimate of $5.70 to $5.87.

For FY 2017, Accenture has over 45% of its revenues coming from Digital, Cloud, and Security Services, which are high margin revenues for Accenture. Accenture spent $1.4B for share repurchases, and generated $1B in free cash flow so far. Accenture also announced $9.2B in new bookings in the most recent quarter. Table 1 below shows some metrics for Accenture going back 5 years.

Table 1 - Accenture's 5 Year Metrics


Table 1 shows that the metrics are fine in my opinion. Revenues, operating margins, net income, earnings per share, dividends, payout ratio, shares outstanding and return on assets are all trending in the right direction. As a person who intends on being a long term shareholder, I can't complain about the most recent numbers or the trends depicted in Table 1.

Since my last article, Accenture has been busy adding to its business portfolio. Just in the month of March, Accenture acquired several companies and opened several new offices, laboratories, and innovation centers. Accenture acquired Davies Consulting enhancing Accenture's capabilities in the utility industry. It acquired First

This article was written by

Walter Zelezniak Jr profile picture
As an individual investor nearing retirement I am trying to build my financial assets in order to have a fulfilling retirement. I am interested in trading both long and short; or at least using inverse ETFs, to take advantage of market declines. Having long term and short term trading strategies, proper execution of my trading plan, and absolute investing results are my goals. I see my articles as a way to keep me focused on developing winning trades. I also expect to learn much from the feedback that is provided in the comments section.

Analyst’s Disclosure: I am/we are long ACN. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (15)

KevinInCO profile picture
Your Put strategy or similar is very smart. Use the quarterly seasonality to your advantage folks!

Also very long ACN, retired Managing Director :)
Looks like ACN touches its 400 day EMA once or twice a year and might be due. $110 looks like a good entry target.
Initiated a position in ACN today. It's been on my radar screen for a few months and actually had cash available during this slight downdraft

In relation to the dividends paid, did ACN brokers deducted a foreign tax deduction from the dividend payment? ( 20%)
I am assuming you are a bonafide resident in the States.
Thanks for the reply.

Walter Zelezniak Jr profile picture

I don't know. I have not yet received a dividend payment. I am looking forward to it though.

mr_cassandra profile picture
Couple recent years examples from my spreadsheet data base going back 19 years

8/21 15-zweig below .375, $nahlr below .02 , $CPCE >1, !binahlsto -100 , ACN has a solid dip to 72 and has since been as high as 125

1/15/16 zweig below .375 and confirmed by $nahlr below .01 , ACN had a solid dip to 100 and below, and it has since been as high as 125
Contrarian Individual Investor profile picture
Walter nice job presenting the numbers. Your chart outlining 5 year metrics really tells the story. Warren Buffet says he would rather buy a good company at a fair price than a fair company at a good price. ACN doesn't get discounted for us much and if you want to hold it you have to pay. In and Out traders just won't be happy with this company.

A couple of key numbers that I watch with Tech Companies are:
#1 Shares outstanding - ACN has used buybacks to take the share count from 727 million to 664 million in the past 5 years. Keep in mind at their IPO they issued 1 billion shares, so they have now removed 1/3 of the shares through buybacks. That is actually returning cash to shareholders rather than what most tech companies do which is to buy back shares and then hand those shares out to management and employees (a.k.a. employee comp expense).
#2 Revenue growth - watch the split between consulting and outsourcing revenue. Accenture tries to balance these two as outsourcing carries lower margins but steadier revenue. As long as revenue grows at a steady pace to GDP in their markets then they are making progress. Any recessions will be balanced out across countries. During global slowdowns, the outsourcing revenue provides a cushion to earnings.
#3 Earnings - I like to adjust currency impacts back out of earnings to watch what earnings are doing at the country level. Helps you watch if they are really maintaining their premium position in the market. For years IBM has 'bought' revenue by signing low margin contracts that then dogs earnings for years. I like the way Accenture walks away from deals that are not win-win with their customers.

I am not much for pattern watching but I know others are. It is likely that the stock price is sensitive to the buybacks as there seems to be a rising stock price when they are likely doing the share buybacks. It is hard to say since they do not disclose when these buybacks occur and the actual buybacks are not really large enough to move the stock significantly. But momentum investors probably exaggerate the upward movement since we tend to see a price pull back after earnings

If you want to lower your entry price I would suggest selling a 3 month duration put right after an earnings release price drop. You could approach that in a lower risk way by selling at the strike price and use the proceeds as your 'discount'. While folks say a naked put is high risk this is less risk (by the amount of the premium) than just buying the stock outright. Or a higher risk approach would be to sell a 4 month put after earnings release at the previous high. This is going to give you a lot of premium if the stock rises above its previous high and if it doesn't will give you a slightly smaller amount of discount that an ATM put would have.

I'm long ACN in case you haven't noticed.
well thought out. agree with this train of thought but i like some risk
mr_cassandra profile picture
Thanks for the article, ACN is one of my favorites on my watchlist. Looking back over the past 5 years, I see that buying opps do not always trigger the full stochastic but zweig breadth thrust signals look like they worked well to buy ACN low, when zweig was below .375.

If $nahlr gets below .01, as I suspect it will soon, all the better.

I cover the free & public indicators that I use in my blog here at seeking alpha. Anyone can go back in time and see how you would have made out buying your favorites at those points.
agreed. long acn
wiredlitigator profile picture
It'll be interesting watching MSFT and ACN regarding Avanade. Clearly there's a long-term plan. The question is whether joint venture is the connection or there's some sort of M&A idea. Anyone know?
Walter Zelezniak Jr profile picture

Thanks for reading and commenting. ACN just keeps moving along in the right direction. They are huge and they operate in so many different industries. I expect them to do quite well in the future.

I'm constantly amazed at how huge this company is.
wiredlitigator profile picture
I've been waiting for an opportunity to buy, and this may be it. The infrastructure Trump plans seems to target tech with the newly-created government advisory board. ACN would gain here. Pull the trigger now? Thanks Walter, your article confirms my feelings.
Walter Zelezniak Jr profile picture

Thanks for reading and for commenting. I am adding to my position this morning. Good luck to you.

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