Accenture [NYSE:ACN] - August 17, 2009 close: $35.81
52-week range: $24.76 (Oct. 10, 2008) - $43.04 (Sep. 19, 2008)
Dividend = $0.50 annually = 1.4% current yield – paid once a year in Q4
Accenture was separated from Arthur Andersen Worldwide in December of 2000 and completed an IPO on July 19, 2001 at $14.50 /share. They provide management and technology consulting services through 200 offices in 52 countries. 2008 revenues exceeded $25 billion. Consulting and systems integration services contribute about 60% of sales with outsourcing services making up the other 40%.
Accenture has held up pretty well through these recessionary times. Sales and earnings both hit all-time records in Fiscal 2008 and slight earnings gains are predicted for both 2009 and 2010. FYs end August 31.
Here are their per share numbers from continuing operations as reported by Value Line:
FY ........... Sales ........ C/F ........ EPS ......... Div. ......... B/V ........ Avg. P/E
2002 ........13.24 .......0.89 ........ 0.91 ........ Nil ...........0.44 ......... 21.1x
2003 ........13.70 .......0.75 ........ 1.05 ........ Nil ...........0.81 ......... 16.1x
2004 ........15.65 .......0.98 ........ 1.22 ........ Nil ...........1.52 ......... 20.0x
2005 ........18.51 .......1.22 ........ 1.46 ........ Nil ...........1.84 ......... 17.0x
2006 ........21.26 .......1.54 ........ 1.62 ....... 0.30 .........2.21 ........ 17.7x
2007 ........28.28 .......2.22 ........ 1.97 ........0.35 ........ 2.72 .........18.8x
2008 ........34.62 .......2.99 ........ 2.65 ........0.42 .........3.47 .........14.2x
Zacks now looks for $2.68 and $2.76 for FY 2009 (ends this month) and FY 2010. That makes the current multiple less than 13.4x trailing and 13x next FY’s estimate. Those are the lowest valuations since the 2001 IPO.
Value Line rates Accenture as ‘above average’ for safety [total debt = < 1% of capital] and notes their 90th percentile ranking for ‘stock price stability’. These shares have outperformed 70% of all stocks in the Value Line universe over the past five years.
Standard and Poors gives ACN a 4-Star rating (out of 5) and sees a $40 one-year price target. Morningstar carries a ‘Fair Value’ figure of $37 right now.
A return to even 15x year-ahead projections for $2.76 leads to a $41.40 goal price over the next 12 – 15 months. With apparent low risk and moderate upside, Accenture shares look to be good candidates for a Buy/Write combination play.
Here’s my current suggestion for the next six months or so:
..................................................... Cash Outlay ............. Cash Inflow
Buy 1000 CAN @ $35.81/share ........... $35,810
Sell 10 Feb. $35 Calls @ $3.10 /share ................................. $3,100
Sell 10 Feb. $35 Puts @ $2.60 /share ................................ $2,600
Net Cash Out-of-Pocket ..................... $30,110
If Accenture shares merely stay above $35 through Feb. 19, 2010:
• The $35 calls will be exercised.
• You will sell you shares for $35,000.
• The $35 puts will expire worthless.
• You will likely have collected $500 in dividends.
• You will have no further option obligations.
• You will end up with no shares and $35,500 in cash.
That’s a best-case scenario total return of $5,390 / $30,110 = 17.9%
achieved in just over 6 months on shares that:
• Went up.
• Stayed unchanged.
• Declined slightly to $35 or (-2.2%).
What’s the risk?
If Accenture shares finish below $35 on February 19, 2010:
 The $35 calls will expire worthless.
 The $35 puts will be exercised.
 You will be forced to buy another 1000 shares.
 You will need to lay out an additional $35,000 in cash.
 You will likely have collected $500 in dividends.
 You will have no further option obligations.
 You will end up with 2000 Accenture shares and $500 cash.
What’s the break-even on the whole trade?
On the first 1000 shares it’s the $35.81 purchase price less
the $3.10 /share call premium = $32.71 /share.
On the ‘put’ shares it’s the $35 strike price less
the $2.60 /share put premium = $32.40 /share.
Your overall break-even would be $32.56 /share (excluding dividends)
and $32.31 /share (including the expected yield).
Accenture shares could decline by up to (9.7%) without causing a
loss on this trade.
Disclosure: Author is long Accenture shares and short Accenture options.
52-week range: $24.76 (Oct. 10, 2008) - $43.04 (Sep. 19, 2008)
Dividend = $0.50 annually = 1.4% current yield – paid once a year in Q4
Accenture was separated from Arthur Andersen Worldwide in December of 2000 and completed an IPO on July 19, 2001 at $14.50 /share. They provide management and technology consulting services through 200 offices in 52 countries. 2008 revenues exceeded $25 billion. Consulting and systems integration services contribute about 60% of sales with outsourcing services making up the other 40%.
Accenture has held up pretty well through these recessionary times. Sales and earnings both hit all-time records in Fiscal 2008 and slight earnings gains are predicted for both 2009 and 2010. FYs end August 31.
Here are their per share numbers from continuing operations as reported by Value Line:
FY ........... Sales ........ C/F ........ EPS ......... Div. ......... B/V ........ Avg. P/E
2002 ........13.24 .......0.89 ........ 0.91 ........ Nil ...........0.44 ......... 21.1x
2003 ........13.70 .......0.75 ........ 1.05 ........ Nil ...........0.81 ......... 16.1x
2004 ........15.65 .......0.98 ........ 1.22 ........ Nil ...........1.52 ......... 20.0x
2005 ........18.51 .......1.22 ........ 1.46 ........ Nil ...........1.84 ......... 17.0x
2006 ........21.26 .......1.54 ........ 1.62 ....... 0.30 .........2.21 ........ 17.7x
2007 ........28.28 .......2.22 ........ 1.97 ........0.35 ........ 2.72 .........18.8x
2008 ........34.62 .......2.99 ........ 2.65 ........0.42 .........3.47 .........14.2x
Zacks now looks for $2.68 and $2.76 for FY 2009 (ends this month) and FY 2010. That makes the current multiple less than 13.4x trailing and 13x next FY’s estimate. Those are the lowest valuations since the 2001 IPO.
Value Line rates Accenture as ‘above average’ for safety [total debt = < 1% of capital] and notes their 90th percentile ranking for ‘stock price stability’. These shares have outperformed 70% of all stocks in the Value Line universe over the past five years.
Standard and Poors gives ACN a 4-Star rating (out of 5) and sees a $40 one-year price target. Morningstar carries a ‘Fair Value’ figure of $37 right now.
A return to even 15x year-ahead projections for $2.76 leads to a $41.40 goal price over the next 12 – 15 months. With apparent low risk and moderate upside, Accenture shares look to be good candidates for a Buy/Write combination play.
Here’s my current suggestion for the next six months or so:
..................................................... Cash Outlay ............. Cash Inflow
Buy 1000 CAN @ $35.81/share ........... $35,810
Sell 10 Feb. $35 Calls @ $3.10 /share ................................. $3,100
Sell 10 Feb. $35 Puts @ $2.60 /share ................................ $2,600
Net Cash Out-of-Pocket ..................... $30,110
If Accenture shares merely stay above $35 through Feb. 19, 2010:
• The $35 calls will be exercised.
• You will sell you shares for $35,000.
• The $35 puts will expire worthless.
• You will likely have collected $500 in dividends.
• You will have no further option obligations.
• You will end up with no shares and $35,500 in cash.
That’s a best-case scenario total return of $5,390 / $30,110 = 17.9%
achieved in just over 6 months on shares that:
• Went up.
• Stayed unchanged.
• Declined slightly to $35 or (-2.2%).
What’s the risk?
If Accenture shares finish below $35 on February 19, 2010:
 The $35 calls will expire worthless.
 The $35 puts will be exercised.
 You will be forced to buy another 1000 shares.
 You will need to lay out an additional $35,000 in cash.
 You will likely have collected $500 in dividends.
 You will have no further option obligations.
 You will end up with 2000 Accenture shares and $500 cash.
What’s the break-even on the whole trade?
On the first 1000 shares it’s the $35.81 purchase price less
the $3.10 /share call premium = $32.71 /share.
On the ‘put’ shares it’s the $35 strike price less
the $2.60 /share put premium = $32.40 /share.
Your overall break-even would be $32.56 /share (excluding dividends)
and $32.31 /share (including the expected yield).
Accenture shares could decline by up to (9.7%) without causing a
loss on this trade.
Disclosure: Author is long Accenture shares and short Accenture options.
