Bill Nygren (Trades, Portfolio) is portfolio manager of The Oakmark Fund, The Oakmark Select Fund and the Oakmark Global Select Fund. He has an M.S. in finance from the University of Wisconsin-Madison and a B.S. in accounting from the University of Minnesota.
Bill Nygren and his partners are value investors, and they invest in companies that they believe trade at a substantial discount to what they consider to be the true business value. They believe that, over time, the price of a stock will rise to reflect the value of the underlying company. In evaluating potential investments, they focus on the following characteristics: A company's stock price and whether it is a significant discount to their estimate of underlying business value, free cash flows and intelligent investment of excess cash, and a high level of manager ownership. They look at each purchase as if they are buying a piece of a business and not just a stock certificate.
Bill initiated an investment in Accenture (ACN, Financial) in Q3, 2014 by buying 2.1 million shares of the company. The stock has outperformed the broader market since the end of 3Q2014 and has gained over 17%. Explaining his investment thesis on the company he wrote in his investor letter,
"Accenture is one of the largest consulting and outsourcing companies in the world with over $30 billion of net revenues. Accenture is one of very few companies that can serve customers in both capacities globally, with scale, and across most industry verticals. As a result, roughly 60% of revenue is from projects where Accenture is the sole service provider from conception through completion, and more than 90 of Accenture’s top 100 customers have been clients for more than 10 years. Management has a long track record of disciplined capital allocation, having reduced the share count by nearly one-third over the past decade, and it recently initiated a fairly generous dividend. Accenture sells for less than 15x EPS, net of more than $7 per share of cash on the balance sheet. We believe this is an attractive price for such a high-quality and well-managed franchise."
Accenture is one of the world’s leading professional services companies, providing management consulting, technology and outsourcing services to clients across a broad range of industries. The company employ more than 305,000 people and have offices and operations in more than 200 cities in 56 countries. Its revenues before reimbursements (“net revenues”) were $30.0 billion for fiscal 2014.
Accenture operate globally with one common brand and business model designed to enable it to provide clients around the world with the same high level of service. Drawing on a combination of industry and functional expertise, technology capabilities and alliances, and its global delivery resources, the company seek to provide differentiated services that help its clients measurably improve their business performance and create sustainable value for their customers and stakeholders. Accenture's global delivery model enables it to provide an end-to-end delivery capability by drawing on its global resources to deliver high-quality, cost-effective solutions to clients.
Accenture recently reported strong earnings and raised it constant-currency revenue growth guidance to 8%-10% (versus earlier estimate of 5%-8%). JP Morgan's Tien-tsin Huang, who has an Overweight rating on Accenture, called this magnitude of guidance increase "rare" and enough to drive the stock higher. Another analyst, Bryan Keane of Deutsche Bank, who also has a buy rating on the company, commented,
"After multiple years of sub-ACN standards for top-line growth (consulting grew flat Y/Y for several qtrs), ACN is back to taking considerable market share in IT Services. Over the last 3 years leading up to the recent outperformance, ACN has invested heavily in developing the right services and solutions investing $800m annual in-organic and $2bn in annual R&D in the Digital and Operations businesses, promoted new leadership and hired people with the right skills (1000 PhDs moved into data analytics). Approximately 60% of ACN’s deals are sole sourced (very high compared to industry average which reflects on the deep client relationships and quality of service) and the increased win rates and higher bookings conversion is driving accelerated growth. For the next several qtrs, we believe ACN could achieve low double digit to high single digit constant currency rev growth rates (comps will get even tougher in FY16)."
Accenture's share prices appears significantly undervalued according to Gurufocus' DCF calculator. The company has business predictibility rating of 4.5 star and its current share price offers a margin of safety of 26%. Accenture is trading at 18.6 times its forward earnings. The company has a dividend yield of 2.20% and its EPS is expected to grow 8.6% next year. I rate the stock a buy at current levels given its good growth prospects and reasonable valuations.
