Accenture:Best of the best
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Accenture plc(NYSE: ACN) is the best of the best of consulting(IT) firms.Previously it was compared with the IT/BPO Services of Hewlett Packard(NYSE: HPQ),Dell Inc(NASDAQ: DELL) and Xerox Corporation(NYSE: XRX) and we found that Accenture simply outclassed HP,Dell,Xerox Services.On compared with the companies like International Business Machines(NYSE: IBM),Aon Corporation(NYSE: AON),Towers Watson(NYSE: TW) and Marsh & Mclennan Companies Inc(NYSE: MMC) Accenture has given stiffer competition.Even though Aon,Towers Watson and MMC are primarily human resources consulting firms,I have compared with these three because there are not many consulting related companies available to compare Accenture with.
Comparison of Accenture With Peer
Revenue Growth : Accenture has strong and diversified business model.Its impressive to glance on its revenue diversity by division,by geographic segment and by client group plus the diversity enabled the firm to generate strong revenue growth without resorting to blockbuster acquisitions.On comparison with Xerox,HP and Dell ,they have got into the IT software and services segment through blockbuster acquisitions.In its most recent quarter,Accenture generated 6% revenue growth year over year in US Dollar terms and 9% in currency equivalent terms.Xerox generated 5% revenue growth and 7% in currency equivalent terms.Both Accenture and Xerox ACS outperformed Dell (1% growth in USD) and HP(-1.27%) Services.
Return on Equity: We find that IBM and Accenture have absolutely breathtaking ROEs of 77% and 68% respectively.Because Aon,Towers Watson and Marsh McLennan have been involved in major acquisitions over the years,those companies have significant level of goodwill and have lower levels of ROE.Accenture and IBM only have between 8-20% of each company’s respective assets,represented by goodwill and intangible assets from acquisitions.IBM utilises debt of around 30% of its assets whereas for Accenture its 3%.Accenture also has cash and cash equivalents representing 36.4% of its assets,versus 15% for IBM.
Accenture(ACN) has the highest FY2013 price- earning ratio of the peer sample at 16X FY2013 earnings per share(EPS).Accenture also has the best record of EPS growth rate of 15% over the last eight years.In price/earningsto growth(PEG) ratio Accenture is the second best at 0.99,trailing Towers Watson at 0.91.
Accenture is an undervalued industry leading best of breed blue chip services and consulting(IT)firms.Despite facing global macroeconomic challenges,we see Accenture continuing to put up solid financial and operating performance.We can say that Accenture is truely the best of the best amongst IT consultants.It has strong liquidity and free cash flow generation.Investors should utilise the opportunity of market weakness to enter into or add to their position in Accenture.
Suprateek pande does not own shares in any of the companies mentioned in this entry.