Accenture Seemingly Unstoppable

By Ryan C. Fuhrmann | March 18, 2012 AAA

Technology consultant and outsourcing giant Accenture (NYSE:ACN) reported very solid second quarter results late last week. This continues a strong run by Accenture's businesses, and investors have taken notice as the stock hit all-time highs. Despite these highs, there could be plenty of further room for shareholder gains going forward.
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Second Quarter Recap
Accenture's revenues increased 12% to $6.8 billion. Management consulting revenues accounted for $3.8 billion, or nearly 56% of the total top line and advanced 8%. Outsourcing revenue made up the rest and jumped 19%. Accenture competes with pure play rivals including Infosys (Nasdaq:INFY) and Wipro (NYSE:WIT) in this space, as well as industry specialists such as Paychex (Nasdaq:PAYX) and the Hewitt division of Aon (NYSE:AON). By geography, Asian growth was the fastest at 20%, followed by 13% in the Americas and 8% in Europe, the Middle Eastern and African regions.

Accenture also breaks down its business by industry group and reported the strong double digit growth in the communications (wireless, cable, satellite clients) products (air, freight, automotive) and resource (chemicals, energy, utilities) spaces. Financial services and health both reported 9% growth to round out robust trends in every main category. Operating profit trends resembled the revenue growth in each category while total operating income improved 13.1% to $889.3 million.

Lower income tax expense helped net income jump 26.2% to $714.2 million and share buybacks also helped as earnings grew 29.3% to 97 cents per diluted share. To know more about income statements, read Understanding The Income Statement.

Outlook and Valuation
For the entire year, Accenture expects to achieve total revenue growth of 10 to 12% and earnings between $3.82 and $3.90 per diluted share. It projects free cash flow in a range of $3.2 billion to $3.5 billion, or approximately $4.39 to $4.80 per diluted share.

At the current price of roughly $65 per share, Accenture trades at a forward earnings multiple of 15.3 and a forward free cash flow multiple of 13.5, assuming it hits the high end of its guidance ranges.

The Bottom Line
Accenture's stock hit its all-time high following the solid earnings release. Its operating performance has been stellar and much of its strong performance will likely continue as large corporations continue to turn to outside providers for help utilizing technology and finding more efficient ways to operate. Accenture has one of the strongest brand names in the business, and though the earnings and cash flow valuations are starting to look stretched, the stock arguably deserves a premium pricing to key rivals. For additional reading, check out 5 Must-Have Metrics For Value Investors.

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At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

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