Accenture Plc (ACN) has a lot of things going for it lately. It recently delivered a solid quarter and raised earnings guidance going forward. The company also has a rock solid balance sheet and produces tons of excess cash flow, which it has used to return value to shareholders through stock buy backs and dividend increases.
Shares have been reaching new all-time highs and valuation remains reasonable.
Accenture is a management consulting, technology services, and outsourcing company. Approximately 60% of revenue comes from consulting and software services, and about 40% from longer-term application management, business process, and IT infrastructure outsourcing deals.
Solid Quarterly Results
Accenture recently reported earnings per share of 66 cents, beating the Zacks Consensus Estimate by 3 cents. It was a 69% increase over the same period in 2009.
Total revenues grew by 6%. The company saw double-digit growth in both its Financial Services and Products divisions. Revenue growth was particularly strong in the Americas and Asia Pacific regions.
The operating margin also improved considerably. Operating income was 13.2% of sales in the fourth quarter, compared to 8.2% in the same period last year.
Following strong fourth quarter results, the company gave guidance for fiscal year 2011 in the range of $3.00 to $3.08.
As a result, all 21 analysts have raised their estimates higher in the last 30 days. The FY2011 estimate is up from $2.91 last month to $3.03, representing 14% annual growth over 2010 EPS. The 2012 estimate is currently $3.37, corresponding to 11% annual growth.
Accenture has over $4.8 billion in cash and cash equivalents and carries virtually no long-term debt.
The company produces a ton of cash each quarter and has very little capital expenditure needs to keep the business going. As a result, the company has used its excess cash to buy back stock and increase its dividend.
Accenture began paying a dividend in 2005 and has raised it every year since then – at an impressive 22.4% compound annual growth rate. It currently yields 2.0%. Its payout ratio is low at just 14%.
The company has also spent over $2 billion year-to-date repurchasing nearly 52 million shares.
Shares trade at 14.9x forward earnings, a discount to the industry average of 18.5x.
Accenture has remarkable return on equity of 52.8%, compared to the average of 14.3%. This helps to justify its price to book ratio of 8.8, which is well above the industry average of 2.3.
Shares have been on a tear lately, setting new all-time highs.
Accenture has a market cap of $28.8 billion. It is a Zacks #2 Rank (Buy) stock.
By Todd Bunton