Outsourcing Puts Accent On Potential

6/8/2009


  Recent Price
$31
  Dividend
$0.50
  Yield

1.6%

  P/E Ratio
11
  Shares (millions)
786
  Long-Term Debt as % of Capital
0%
  52-Week Price Range
$43.04 - $24.76

Accenture’s ($31; ACN) multipronged approach has provided balance in a shaky economy. Outsourcing operations are partially filling the gap left by the contraction of the consulting market.

The current recession is notable for weakness throughout many sectors of the economy, but Accenture’s business mix and diversified stable of large, strong clients suggest it could be among the first to recover. The client list, which includes 96 Fortune Global 100 companies, spans 17 industries and 52 countries.

Accenture has an impressive track record. Before the February quarter, when per-share profits dipped 2% on a 6% sales decline, Accenture had a streak of at least 20 consecutive quarters without a decline in sales or per-share profits. Accenture is a Buy and a Long-Term Buy.

Business breakdown
Consulting work accounts for nearly 60% of Accenture’s sales, while outsourcing comprises the balance. Operations are split into five segments. The products unit made up 26% of sales in the past 12 months, followed by communications and technology (23%), financial services (21%), resources (18%), and public services (13%).

All five segments grew revenue over the last year, though currency losses hurt results in the February quarter. Total sales rose 3% for the quarter at constant currency but dipped 6% including the currency impact.

In the February quarter, bookings declined 7% year-over-year to $5.98 billion. Consulting bookings fell 17%, offsetting a 7% gain in outsourcing orders. Management says the pipeline for both segments remains strong, but contract deferrals, cancelations, and a decline in project extensions have affected revenue.

In 2008, outsourcing activity grew more than 40% worldwide, primarily through smaller deals as clients teamed up with multiple partners. This year, demand for products that help control costs remains solid, though clients are careful in their spending.

Leaving the island
Accenture’s board agreed to relocate the company’s headquarters to Ireland from Bermuda, pending shareholder approval. The company expects minimal operational and tax impacts from the move, a pre-emptive measure as U.S. legislative proposals target traditional tax havens. A member of the European Union, Ireland offers a stable government, attractive tax laws, and favorable trade agreements with other EU members.

The stock will be likely removed from the Russell 1000 and 3000 and Wilshire 5000 indexes in the next few months. Index funds are likely to sell if the stock is dropped from the indexes, and rebalancing could lead to the sale of roughly 25 million shares, sparking a modest sell-off. If it occurs, do not panic — hold onto these quality shares.

Conclusion
The consensus projects per-share earnings will dip 1% in fiscal 2009 ending August, followed by a 3% gain in fiscal 2010. At 12 times year-ahead earnings of $2.58 per share, the stock trades below its five-year average forward P/E ratio of 21. Accenture is slated to release May-quarter results June 25. An annual report for Accenture Ltd. is available from 22 Victoria St., Hamilton HM 12, Bermuda; (441) 296-8262; www.accenture.com.

 

ACCENTURE
Quarter

    Per-Share
     Earnings*

Sales
Change

      Quarterly
      Price Range

P/E Ratio
Range

Feb '09 $0.63 vs. $0.64 -6% $34.80 -

$26.25

12 - 9
Nov '08 0.74 vs. 0.60 + 6% 43.04 - 24.76 16 - 9
Aug '08 0.67 vs. 0.50 + 18% 42.00 - 38.02 17 - 15
May '08 0.74 vs.

0.54

+ 19% 42.04 - 32.42 18 - 14
           
Year
(Aug.)

Sales
 (Bil.)

Per-Share
Earnings*
Per-Share
Dividend

52-Week Price Range

P/E Ratio
Range

2008 $25.31 $2.65 $0.42 $42.32
-
$31.91 16 - 12
2007 $21.45 $1.97 $0.35 44.03
-
28.28 22 - 14
2006 $18.23 $1.62 $0.30 33.05
-
24.45 20 - 15
2005 $17.09 $1.46 $0.00 27.60
-
21.00 19 - 14
             
————————————————— Quadrix Scores † —————————————————
Overall Momen-
tum
Value Quality Financial
Strength
Earnings
Estimates
Performance
94 76 87 97 95 31 26

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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