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A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. As the new year begins, I would like to pinpoint on a leader in management consulting, technology, and outsourcing industries, Accenture (NYSE: ACN).
- Solid Revenue Growth: In 2007, Accenture reported revenue of $19.69 billion; in 2012, the company announced $29.78 billion in revenue, representing year over year annual growth 8.63%, a solid trend which is widely anticipated to sustain into the future, with projections placing 2019 revenue at $47.00 billion; due mostly from a combination of an increase of Accenture software application outsourcing professionals and revenue derived from each of these professionals
- Dividend: Currently, Accenture pays out semi-annual dividends of $0.81, which annualized puts the dividend as yielding 2.45%
- Institutional Vote of Confidence: 74.11% of shares outstanding are held by institutional investors, displaying the confidence some of the largest investors in the world have in the company and its future
- Cash & Equivalents: At the moment Accenture holds about $5.68 billion of cash and cash equivalents on their balance sheets, a major upside to the business
- Lack of Debt: Accenture currently only possesses about $0.019 million of debt on their balance sheets, a major upside to the business
- Reasonable Valuation: At the moment Accenture carries a price to earnings ratio of 16.83, a price to book ratio of 10.81, and a price to sales ratio of 1.55, all of which point to a company trading with a reasonable valuation
- Established & Diversified Nature: Accenture is valued at $45.28 billion, operates in over 120 countries, and employs 257,000; and with this established and diversified nature comes a certain level of certainty and predictability
- Single Digit Margins: Accenture currently possesses a net profit margin of 8.58%, which is not in the ideal double digit range, and leaves little room for unexpected expenditures; these tight margins are a result of Accenture's struggle to remain competitive in all segments of its business
- Approach Favors Large Businesses: Accenture’s services are more effective and useful for large scale business, not exposing Accenture to a large pool of small businesses
- Dependence on Partners: Accenture’s business model is entirely based around providing services and products to their partners, and this heavy dependence on their partners is a troubling weaknesses, as a major corporation never wants to have to rely on someone else
- Operating Expenses: When a business expands like Accenture’s has, the costs related to operating that business will also grow, however over the past years operating expenses have outgrown revenues, an ominous sign
- Margin Compression: Over the past years revenue has grown 136.80%, while gross profit has grown only 63.44%, representing margin compression, a terrible sign; due to Accenture's crippling move of lowering rates to remain competitive
- Dividend Growth: Since implementing their dividend program in 2005, Accenture has consistently raised their dividend payouts; this trend is highly expected to sustain into the future
- Acquisitions: In October 2012, Accenture acquired avVenta Worldwide, and further acquisitions in the future could introduce new technologies to the company and fuel future growth
- Increasing Competitive Landscape: The economic picture is currently very gloomy, the United States is on the brink of falling off of the fiscal cliff, consumers are not spending as much as they used to, and because of this the competitive landscape between companies is intense, and as this competition only increases, more and more companies will turn to Accenture for help innovating their business
- Increasing Margins in Outsourcing: Outsourcing is the largest segment in Accenture’s business, and increasing margins in this monumental segment could boost revenues (2005 EBITDA Profit Margin: 12.7% 2011 EBITDA Profit Margin 16.1%)
- Competition: The industries Accenture operates in are very competitive, and competition to offer the best product for the least amount of money can lead to margin compression
- Sluggish Global Economy: In an economic landscape riddled with such uncertainty and stagnation, economic activity is sluggish, and because of this businesses are less willing to reinvest in their own businesses as it is harder to predict a return on that investment
- Cost Saving Nature of Businesses: At the moment businesses are in search of non-expensive services and products, and Accenture is not known for its low rates, Accenture offers premium products and services for a premium price, and because of this Accenture may suffer in difficult economic times
- Indian Outsourcing: In the past years a new threatening trend has emerged, Indian outsourcing, which offer consultants for a rock bottom price, and this combined with the difficult economic times destroyed Accenture’s pricing power, and if this trend sustains margins could be further paralyzed
Major publically traded competitors of Accenture include International Business Machines (NYSE: IBM), Infosys Limited (NYSE: INFY), Siemens (NYSE: SI), and Ericsson (NASDAQ: ERIC). All of these companies offer products and services similar if not identical to those of Accenture. IBM is valued at $216.75 billion, pays out a dividend yielding 1.77%, and carries a price to earnings ratio of 13.81. Infosys is valued at $23.97 billion, pays out no dividend, and carries a price to earnings ratio of 13.56. Siemens is valued at $92.38 billion, pays out a dividend yielding 3.60%, and carries a price to earnings ratio of 14.27. Finally, Ericsson is valued at $33.05 billion, pays out a dividend yielding 3.47%, and carries a price to earnings ratio of 15.72.
The Foolish Bottom Line:
Accenture is a financially solid company with solid revenue growth, a growing dividend, no debt, and a sizable pile of cash on their balance sheets. The company possesses a future filled with opportunities and threats alike, however the in the end the company will be essential to businesses as they struggle to remain competitive in a strained economic world. All in all, Accenture is a tremendous long term investment, and should flourish in the coming decades if they are able to maintain their dominance in their various industries.
makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool owns shares of International Business Machines. Motley Fool newsletter services recommend Accenture Ltd. and International Business Machines. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!