Simply put, Accenture (NYSE:ACN) is focused on making companies better. Interestingly enough, it practices its own advice — the company is actually one of the top in the world.
In the latest quarter, Accenture posted a 21% increase in revenue to $6.7 billion, which is a record. Earnings came to 93 cents a share, up 27% — this was also record.
Investors have certainly taken note. For the past five years, the average annual return has been 17.4%.
But what can investors expect going forward? Let’s take a look at the pros and cons:
Pros
Global powerhouse. Accenture is unique in terms of its capabilities and scale. As a result, it is the go-to company for the Global 2000 companies.
Accenture has more than 223,000 employees and has operations in more than 120 countries. In fact, the company had the foresight to invest in lower-cost areas like India and the Philippines, which has turned out to be a big advantage.
Secular trends. To compete, companies need to implement new technologies and target global markets. To this end, Accenture is a great partner. The firm has tremendous expertise in areas like enterprise resource planning software, such as from SAP (NYSE:SAP) and Oracle (Nasdaq:ORCL), as well as consulting on complex matters like compliance, risk management and cost reduction programs.
Financials. Accenture’s results are rock-solid. The company has $5.3 billion in the bank and continues to generate substantial operating cash flows. As a result, it has been aggressive with buying back shares and is paying a fairly decent dividend of 1.6%.
Cons
Public sector. This is a tough area right now. Governments are in the process of cutting back, especially in light of budget deficits. Thus, expect these pressures to have an impact on Accenture.
Management. Accenture is a highly complex organization. Consider that the utilization rate of its workforce varies (which is now about 86%). Also, turnover is about 14% to 15%.
Accenture constantly needs to hire new employees. For fiscal 2011, the goal is to hire 64,000 people. No doubt, such a process is not easy and has its risks.
Economy. This could be a big issue for Accenture (just look at how the company got hit during the 2009 recession). The fact is that it is easy for customers to cut back on consulting projects when the economy falters.
Unfortunately, there is more evidence that the world is undergoing a slowdown, even in traditionally fast-growing areas like China.
Verdict
For the long haul, Accenture is in an enviable position. It should benefit nicely from the tailwinds of outsourcing, globalization and technology investments. What’s more, the company is making key investments in next-generation categories like cloud computing, analytics and mobile.
In the near term, there should be momentum as well. Keep in mind that in the most recent quarter, Accenture’s bookings increased 8% to $7.1 billion (this is the highest in the past 11 quarters). In other words, this will provide a nice uplift for the next year.
The pros outweigh the cons on the stock.
Tom Taulli’s latest book is “All About Short Selling” and he has an upcoming book called “All About Commodities.” You can find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.
