In this article, let's take a look at Accenture plc (ACN, Financial), a $58.31 billion market cap company, which is a global management consulting, technology services and outsourcing company.
Differentiation
The company´s knowledge of industries and business processes help clients to identify new opportunities in order to boost revenue and expand operations into new markets.
It focuses on three key growth areas: management consulting; technology and business process outsourcing. This way it collaborates with its clients in order to improve their value added in terms of efficiency and growth prospects.
We know the industry is characterized for being highly competitive, but we still believe the firm can outperform its peers in the long run, differentiating by offering solutions with real business benefits.
Dividend Policy
Ireland-based Accenture has an attractive dividend policy showing its commitment to return cash to investors in the form of dividends as it generates healthy cash flow on a regular basis. The current dividend yield is 2.3%, which is quite good to protect the purchasing power, especially considering the consistency of track-record dividends payments. Dividends have been paid since 2005. The company allocated capital to repurchase stock and pay dividends. In fiscal year 2014, the firm bought back $2.6 billion in stock and paid $1.2 billion in dividends.
Estimated One-Year Price
According to Yahoo! Finance, the estimated one-year target share price is $ 92.21, so if you buy shares at current market price ($88.85), your return from price appreciation would be 3.8%. In addition, you have to consider any cash flow received by the asset. So for holding the stock one year, you'll be paid a dividend of $2.04 at the end of the year. If we divide this number by current price per share, we obtain the dividend yield, which is the other component of the return on an investment for a stock, and in this case is 2.3%. So the total expected return for investing in Accenture is 6.1%.
Revenues, Margins and Profitability
Looking at profitability, revenues increased by 6.96% and led earnings per share increased in the most recent quarter compared to the same quarter a year ago ($1.29 vs $1.15). The net income increased by 10.6% when compared to the same quarter one year prior, from $751.85 million to $831.53 million.
Finally, let´s compare the best measure of performance for a firm's management: the return on equity. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.
| Ticker | Company | ROE (%) |
| ACN | Accenture | 55.91 |
| GIB | CGI Group Inc | 18.83 |
| DOX | Amdocs Ltd | 12.53 |
| IT | Gartner Inc | 73.26 |
| TDC | Teradata Corp | 19.35 |
| INFY | Infosys Ltd | 25.30 |
| Industry Median | 7.06 |
The company has a current ROE of 55.91% which is higher than the industry median and the ones exhibit by CGI (GIB, Financial), Amdocs (DOX, Financial), Teradata (TDC, Financial) and Infosys (INFY, Financial). In general, analysts consider ROE ratios in the 15-20% range as representing attractive levels for investment. So for investors looking those levels or more, Gartner (IT, Financial) could be the option. It is very important to understand this metric before investing and it is important to look at the trend in ROE over time.
Relative Valuation
In terms of valuation, the stock sells at a trailing P/E of 19.3x, trading at a discount compared to an average of 59.3x for the industry. To use another metric, its price-to-book ratio of 10.5x indicates a premium versus the industry average of 3.48x while the price-to-sales ratio of 1.9x is above the industry average of 2.54x.
As we can see in the next chart, the stock price has an upward trend in the five-year period.
Growth of 10,000
If you had invested $10.000 five years ago, today you could have $23.520, which represents a 18.7% compound annual growth rate (CAGR).
Final Comment
This is a great company, some numbers speak for themselves. With 305,000 employees, operations in over 120 countries, and specialization in about 40 vertical industries, the company is considered a leading IT services provider.
Moreover, the PE relative valuation and the return on capital that significantly exceeds the industry average and make me feel bullish on this stock.
Hedge fund gurus like Ray Dalio (Trades, Portfolio), Jim Simons (Trades, Portfolio), Bill Nygren (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Tom Gayner (Trades, Portfolio), John Rogers (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio) added this stock to their portfolios in the third quarter of 2014, as well as Manning & Napier Advisors, Inc.
Disclosure: Omar Venerio holds no position in any stocks mentioned
