Moshe Katri, an analyst at Cowen and Company, recently upgraded Accenture (ACN, Financial) from Market Perform to Outperform with a price target of $110. According to the analyst, Accenture is set to benefit from strong growth in digital work. In his research report he wrote:
"We believe recent growth acceleration in consulting revenues and consulting bookings are sustainable given the company’s exposure to digital work (roughly 20% of FY15’s revenues, posting 20%+ growth), while the rest of Accenture’s revenue base is posting mid-single digit growth. Our sensitivity analysis suggests that digital could account close to 30% of revenues (on an organic basis) by FY17. Our survey suggests that Digital will likely be additive to Accenture's revenue growth rather than being dilutive.”
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 operates 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.
Last month, Accenture 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)."
Sell side analysts are not alone in terms of their bullish view on the company. Last year, Bill Nygren (Trades, Portfolio) of Oakmark Fund made similar positive comments on the company's performance. Here are the excerpt from 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's share prices appears significantly undervalued according to Gurufocus' DCF calculator. The company has a business predictibility rating of 4.5 stars and its current share price offers a margin of safety of 24%.
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.
