Accenture plc ACN is well set on the growth trajectory, gathering momentum from its positive earnings surprise history and strong fundamentals. Also, shares of Accenture have been trending upward, yielding a positive one-year and year-to-date return.
An impressive track record of better-than-expected quarterly revenues along with an encouraging fiscal 2016 revenue outlook, solid cash flows and the policy of regularly returning cash to shareholders are driving Accenture’s positive share movement.
Accenture’s first quarter of 2016 net revenue not only increased 1.5% year over year to $8.013 billion but also surpassed the Zacks Consensus Estimate of $7.896 billion. In local currency terms, revenues increased 10% year over year. Net revenue also came ahead of management’s guided range of $7.70 billion and $7.95 billion, primarily aided by a 6% increase in Consulting revenues ($4.35 billion), which more than offset a 4% decline in Outsourcing revenues ($3.67 billion). It is worth mentioning that Consulting revenues increased 15% in local currency whereas Outsourcing revenues increased 5% in local currency.
Accenture has a strong balance sheet. As of Nov 30, 2015, the company had cash and cash equivalents of $3.07 billion and long-term debt of $25.8 million. This enables the company to pursue strategic acquisitions and invest in growth initiatives.
Accenture’s strong operating cash flow has helped it to return cash through regular quarterly dividend payment and share repurchases. Accenture repurchased 6.5 million shares for $658 million during the first quarter. The company increased its semi-annual cash dividend by 8% to $1.10 per share during the quarter. Share repurchases are a good way of returning cash to investors while boosting the company’s earnings.
It is worth mentioning that Accenture has made several acquisitions to expand its product and service offerings and expand its client base. These include Reactive Media, Hytracc Consulting, Enkitec and i4C Analystics. Continuing with its strategy of growing through acquisitions, the company took over Hong Kong-based PacificLink Group in Jul 2015, and Brightstep and Javelin Group in June. These acquisitions have enabled Accenture to enter new markets, diversify and broaden its product portfolio and maintain its leading position. We believe the company’s continued acquisitions will contribute to its revenue stream.
Going forward, Accenture’s solid performance across insurance, banking and health care segments reflects strong demand for its services, which will boost its long-term growth prospects.
Nonetheless, increasing competition from Cognizant Technology Solutions CTSH and International Business Machines Corporation IBM, a strained spending environment and Accenture’s broad European exposure may temper its growth to some extent.
Accenture has a Zacks Rank #3 (Hold). A better-ranked stock is VASCO Data Security International Inc. VDSI, which sports a Zacks Rank #1 (Strong Buy).
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