Accenture plc – Growth & Income

July 2nd, 2011 | by Maddison Paltridge |

Accenture plc (ACN – Snapshot Report) reported its 5th consecutive positive earnings surprise on June 23. Revenue jumped 21% year-over-year and EPS came in at a record 93 cents, beating the Zacks Consensus Estimate of 89 cents.

Management raised both its revenue and EPS guidance for the remainder of the year, and analysts significantly revised their estimates higher, sending shares to a Zacks #2 Rank (Buy).

While Accenture currently has strong earnings momentum, it also has a very solid balance sheet with over $5 billion in cash and no long-term debt. It has been aggressively buying back shares and paying a dividend that yields 1.5%.

Third Quarter Results

Accenture reported another strong quarter on June 23. Earnings per share came in at a record 93 cents, 4 cents ahead of the Zacks Consensus Estimate. It was a 27% increase over the same quarter in 2010.

Total revenue rose 21% to $7.204 billion, well ahead of the Zacks Consensus Estimate of $6.396 billion. Four out of the company’s five operating groups showed top-line growth of 20% or more. The Resources segment lead the way with a 28% increase. Growth was also robust across all geographies with Asia Pacific up 38%.

The operating margin declined from 14.4% to 14.1% due in part to an increase in cost of services as a percentage of revenue. Operating income still rose a solid 18% year-over-year, however.

Guidance Raised

Management raised its guidance for the remainder of 2011 following the stellar Q3 results. The company now expects revenue growth of 14-15%, up from previous guidance of 11-14%. Earnings per share is expected to be in the range of $3.36-$3.40, up from prior guidance of $3.22 to $3.30.

Strong Earnings Momentum

Consensus estimates jumped higher off the strong quarter, sending the stock to a Zacks #2 Rank (Buy). The 2011 Zacks Consensus Estimate climbed from $3.27 to $3.37 per share. It’s currently 27% above 2010 EPS. The 2012 consensus estimate jumped 11 cents to $3.78, representing 12% EPS growth.

Earnings momentum is stellar for Accenture as it has delivered five consecutive positive earnings surprises. Consensus estimates have steadily risen over the last several months, as seen in the company’s Price & Consensus chart:

Cash Machine

Accenture had over $5 billion in cash and investments and no long-term debt on its books at the end of the third quarter. The company generates a ton of free cash flow and has been returning much of it to its shareholders through dividend increases and share buybacks.

Year-to-date, Accenture has generated approximately $1.8 billion in free cash flow and has spent over $1.4 billion repurchasing shares and $644 million paying out dividends.

It currently yields 1.5%.

Reasonable Valuation

Shares have jumped higher after the company’s third quarter beat, but valuation is still reasonable for ACN. The stock trades at 16.1x 12-month forward earnings, a discount to the industry average of 19.7x and essentially in-line with its 10-year median.

Accenture also produces remarkable returns on invested capital. ROIC over the last 12 months was 57.0% compared to the industry average of 8.5%.

The Bottom Line

Accenture continues to outperform expectations and recently delivered its 5th consecutive positive earnings surprise. Consensus estimates continue to rise and analysts are projecting strong growth for the company over the next two years.

The company is also shareholder-friendly as it has been buying back tons of shares and raising its dividend. Despite the recent run up in the share price, the stock still looks attractive with a forward P/E below its peers.

Read the December 27 article here.

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