Can This Stock Deliver High Performance Yet Again?

Rishabh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

From its inception, Accenture (NYSE: ACN) has always believed in doing things differently and living 'The Accenture Way.' It believes in its motto of 'Be greater than' symbolizing it with a '>' sign over its logo. In its recent third quarter results, it toppled and failed to meet revenue expectations. However, upon closely looking at its plans, it shows how the company still stands out from its peers and has the potential of delivering high performance yet again!

Numbers delivered

"Today we announced our third-quarter financial results. Overall, our results were solid, although consulting revenues were below our expectations. We again delivered solid new bookings and very good profitability, and we generated very strong free cash flow, said Chairman and CEO Pierre Nanterme.

The company reported third quarter earnings last month. The revenue reported in the quarter was $7.2 billion, which was 3% growth in local currency over the same period last year. Whereas outsourcing revenue grew 7%, having flat revenue growth in consulting. This has resulted in missing the guided range of total revenues for the quarter.

The company has lowered its revenue guidance from a 5%-8% range to a range of 3%-4% in local currency, also narrowing down its EPS guidance from $4.89 - $4.97 to $4.90 - $4.94. Accenture offers its shareholders a decent dividend yield at 2.1%, which is 2% higher than the dividend yield at IBM (NYSE: IBM).

The chairman's speech delivered

Nanterme points out the many areas where the company is performing extremely well with double-digit digit year-to-date growth, including Business Process Outsourcing. The participants being the United States, China, India and South Africa with technologies like mobility and cloud analytics and industries such as insurance, capital markets and health and life sciences. He also believes that the communication industry remains dynamic, and offerings around transformation are resonating with the clients showing strong double digit growth.

About the bad quarter, he explains:

We continue to operate in an uncertain and volatile economic environment, which has had an impact on our business. In particular, we have faced challenges in some areas of our business, such as consulting in Europe, Brazil and Resources.

But owing to the company's plans and strategic acquisitions, he sounds confident regarding the current progress of the company. He summarizes it as follows

This gives me confidence that we are executing the right strategy and building from a very strong platform that includes our Diamond Client relationships, brand and industry expertise. I have no doubt that the services we provide, continue to be highly relevant to the needs of our clients.

Accenture, Broadridge jointly launch Accenture Post-Trade Processing

Accenture and Broadridge Financial Solutions have recently launched Accenture Post-Trade Processing. The solution provides post-trade processing and technology services to support settlement, books and records, operational management and control, asset servicing, real-time data access and administrative accounting. This can prove to be a smart move for Accenture to help push revenue digits.

Accenture launches Accelerated R&D Services

It is a business service focused on delivering streamlined and integrated research and development functions helping pharmaceutical companies bring new medications to patients using a more collaborative and efficient approach. The company is investing more than $200M to deliver this fully-integrated, technology-enabled global business service.

To support the strategic R&D initiatives of more than 300 clients, Accenture is working with a leading pharmaceutical company to build a first-of-its kind clinical data aggregation and exchange platform. This could be another feather in the hat for Accenture and subsequently beneficial for its investors.

Acquisitions and clients delivered

Accenture is well positioned in the digital world, helping clients in businesses for decades now. It is a leader in the management consulting industry, and a constituent of the Fortune Global 500. Now, Accenture's CMO wants integrated solutions strategy and analytics to add more value out of their investments. The following are the company's recent strategic investments to improve its portfolio:

>Accenture recently acquired Acquity Group for $316 million in its quest to become the panacea for the data-driven woes of CMOs. Acquity's 600 employees will join Accenture Interactive. Acquity was named 2012 partner of the year by both Adobe and Hybris. A recent spate of acquisitions makes it evident that Accenture Interactive aims to present itself as a one-stop-shop for CMOs.

>It also purchased design consultancy and the second largest independent digital marketing company in the US, Fjord, just last month and digital production house avVenta in late 2012. This together expands its capabilities and position as a leader in the fast growing segment of the digital marketing.

>Also, BMW has selected Accenture to manage a new web platform roll out around the world.

>In analytics and mobility, the company is helping a major airlines, providing a single comprehensive view of customer preferences for customer data from different touch points including PCs, phones and mobile devices.

>It has also indulged in a global alliance with General Electric for leveraging combined capabilities in big data, cloud, analytics and mobility.

It is clear that Accenture is continuously innovating and delivering cutting edge solutions to its clients, thereby building a strong diversified portfolio.

Competition delivered

Accenture is presently trading at $73.12 per share, having the highest forward earnings valuation of 16.7, compared to Oracle (NYSE: ORCL) and IBM. It also has the highest PE Ratio (TTM) of 73.12, whereas Oracle and IBM are just 14.40 and 14.02, respectively.

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ACN data by YCharts

Oracle has the lowest valuation among the three and is trading at $32.54 per share with a total market cap of $149 billion. In the recent fourth quarter earnings results, the company experienced a 9% decline in its hardware business, but a 4% increase in the software business revenue.

Looking forward, the company has plans to return $12 billion in cash to shareholders in a form of share repurchases. This will create a total yield of 9.55% for the shareholders. Oracle has generated around $14 billion in operating cash flow thereby increasing its cash position to around $32 billion in the entire year. The market values Oracle at around 10.2 times its forward earnings.

Unlike Accenture and Oracle, IBM reported a positive growth last quarter, owing to the investments in cloud computing and software. It projects profit of $16.90 per share for the year, a 1.6% increase year-over-year. The company's smart strategy of boosting dividends and share buybacks has helped in bringing this uptick. The company's approach has definitely helped in yielding positive results, but Accenture hasn't done the same yet.

IT services have always been a problem for Accenture. This is due to the fact that now customers do not go for short term commitments with Accenture as before. IBM also recently acquired Softlayer in order to grow revenue with the big data trend, and companies transitioning to cloud computing. The company is trading at $197.35 at present.

Undoubtedly, both IBM and Oracle are global leaders in IT service industry and have gained a high level of customer loyalty. This will provide a sustainable recurring revenues for both the companies in the future.

High performance delivered

As we close out FY13 and prepare for the new fiscal year, our collective mandate is to 'go for growth.' As the market continues to change rapidly, we have the opportunity to position Accenture for growth. I believe that our innovation agenda, diverse portfolio of business, and relentless focus on operating with rigor and discipline will continue to drive our performance,” affirms Nanterme.

This clearly shows that despite the disappointing third quarter results, Accenture's Chairman looks bullish about the company's future. I also believe that constant deal wins are a great plus for the company. Also, the company is getting demands from other sectors like healthcare and presently it has started focusing on the data center business to bag bigger deals.

Overall, increased profitability and revenue base remain pretty strong for Accenture. With its aggressive share repurchase programs, the stock price is likely to increase, and I would suggest a buy at the present prices. I truly believe that Accenture still has the potential to live up to its tag line and deliver high performance once again in the future.

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Rishabh Jain has no position in any stocks mentioned. The Motley Fool recommends Accenture. The Motley Fool owns shares of Broadridge Financial Solutions, International Business Machines., and Oracle.. 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!

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