This Tech Consultancy is Showing Strong Earnings Growth

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In an age where traditional tech companies find themselves increasingly unable to cope with the rapid changes affecting the sector, it is for most indeed a struggle to keep up. Yet, some companies have flourished in this climate by offering superior services. Accenture PLC (NYSE: ACN) is a tech consulting firm with operations in over 120 countries. With a market cap just shy of $50 billion, it is a heavyweight player in its industry. The company has consistently been able to increase earnings over the last few years, and maintains a positive outlook despite an uncertain macro-economic backdrop and weakness across several areas of the tech sector.

Earnings

Over the last five years, Accenture has outpaced industry earnings by at least 1% every year, and seems capable of sustaining this trend. The firm reported Q4 revenues of $6.84 billion, beating the analyst expectation of $6.75 billion and representing a rise of 2% over the same period last year. EPS beat the consensus by about a penny, as the company returned around $2 billion to investors over 2012 in the form of share repurchases. For the full year, revenue rose 9% to $27.9 billion, and diluted EPS is up 13% to $3.84. These are impressive results, and represent a record high for the company.

Valuation

These strong earnings may already be partly reflected in the stock price, which seems more or less fairly valued at the moment. The P/E stands at 18.4x earnings compared to the 21.6x industry average, and the stock has a rather high price to book of 10.45. Xerox (NYSE: XRX), Accenture’s largest competitor in the Business Support space by market cap, is a lot cheaper at 8x earnings and 0.8 to book, but has lagged behind the industry earnings growth rate for the last five years. Cintas (NASDAQ: CTAS), another competitor, has a comparable valuation with a P/E around 17.83x, but isn’t keeping up with Accenture or the industry in terms of revenue growth. Accenture has a huge return on equity of over 60%, but due to the seemingly fair valuation at the moment, some investors may prefer to wait for a pullback before committing funds.

Good News

The company moreover has a very impressive balance sheet with over 6 billion dollars in cash which can be used to fund acquisitions, buy back shares, or raise dividends. The stock currently yields 2.3% but the payout ratio is only 35%, which means it has room to grow. The firm recently acquired avVenta Worldwide, a provider of digital production services. This should allow Accenture to increase its competitive edge in the digital market space, and strengthens the position of both companies.

Other good tidings include a number of high profile contracts the company has managed to attract in the last few days. Accenture scored a one-year contract for the Dutch Ministry of Social Affairs to provide application outsourcing for the ‘Filenet’ system that manages over 800 million Euros in grants and subsidies each year. Accenture has also pulled in a five-year contract with the Norwegian government to create and implement a National Electronic Health Record. The government hopes to improve the national health care system in this way by increasing the effectiveness of patient care and access to patient information. Moreover, this system will allow Norwegian citizens to access and maintain their own medical records.

Bottom Line

All in all, Accenture seems to be delivering very impressive performance. Earnings growth is strong, as well as revenue growth. The stock offers a fair dividend which looks set to grow in the near-term as the company has a very comfortable cash position. With the recent acquisition of avVenta, and a number of high-profile contracts the company has managed to pull in, the company seems set to grow even further. The stock looks like a very strong play in the tech sector, and offers good value for money. However, the company appears fairly valued at the moment which may halt the stock's advance in the near-term.

 


DUJames has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Accenture Ltd. and Cintas. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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