Accenture Plc (ACN): Zacks Rank Buy

Zacks

Accenture Plc (ACN) recently delivered a solid earnings and revenue beat, and management raised its guidance for 2012. This prompted analysts to revise their estimates higher, sending the stock to a Zacks #2 Rank (Buy).

The company continues to generate strong free cash flow, which it is using to buyback stock and raise its dividend. It currently yields a solid 2.1%.

Company Description

Accenture is a management consulting, technology services, and outsourcing company. Approximately 56% of revenue comes from consulting services, and about 44% from longer-term application management, business process, and IT infrastructure outsourcing deals.

Second Quarter Results

Accenture delivered better than expected quarterly results for the second quarter of its fiscal 2012 on March 22. Earnings per share came in at 97 cents, well ahead of the Zacks Consensus Estimate of 86 cents. It was a stellar 29% increase over the same quarter in 2011.

Revenue rose 12% to $6.797 billion, ahead of the Zacks Consensus Estimate of $6.658 billion. This was driven by an 8% in Consulting revenue and a 19% increase in Outsourcing revenue.

Revenue was strong across all geographies, with a 13% increase in the Americas, 8% increase in Europe, Middle East and Africa, and a 23% jump in Asia.

Operating income increased 15% year-over-year as the operating margin expanded 34 basis points to 13.1%.

Raised Guidance

Management raised its guidance for 2012 following strong second quarter results. The company now expects earnings per share between $3.82 and $3.90, up from previous guidance of $3.76 and $3.84, on revenue growth of 10-12%.

This prompted analysts to revise their estimates significantly higher for both 2012 and 2013, sending the stock to a Zacks #2 Rank (Buy).

The Zacks Consensus Estimate for 2012 is now $3.87, corresponding with 14% EPS growth. The 2013 consensus estimate is currently $4.28, representing 11% growth.

Returning Value to Shareholders

Accenture continues to generate strong free cash flow. During the second quarter, free cash flow increased 48% to $772 million.

The company continues to use this cash to return value to shareholders through stock buy backs and dividend hikes. During the second quarter, it spent $465 million buying back 8.6 million shares.

It also recently increased its semi-annual dividend by 50%. It currently yields a solid 2.1%.

Reasonable Valuation

Valuation still looks reasonable for ACN. Shares trade at 15.7x 12-month forward earnings, a small discount to its 10-year median of 15.9x.

It price to free cash flow ratio is a very reasonable 12.8, which is also below its historical median of 14.0.

The Bottom Line

With increased guidance, rising earnings estimates, strong free cash flow, a 2.1% yield and reasonable valuation, Accenture still offers investors a lot to like.

Read the July 1 article here.

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