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Accenture’s Dip: An Opportunity, Not an Omen

One (slightly) disappointing quarter doesn't make this stock a loser


To read the headlines or see the stock’s chart, one would think technology consultancy Accenture (NYSE:ACN) is on its death bed. Headlines like “Investors Don’t Like These Results” and “Accenture Falls the Most in a Year” are prolific, and sure enough, it looks like someone pulled the rug out from underneath the stock.

Funny thing about the media and the investors as a whole, though: Both groups can take the ball and run with it, right or wrong. Worse, each group can prod the other, creating a vicious selling cycle where the more a stock falls, the more bearish the news becomes. That causes even more selling, causing even more pessimistic media coverage, etc.

Is that what’s happening here? Or is Accenture truly the mess it’s being made out to be?

The Rest of the Story

In fairness to the bears, Accenture did share some disappointing numbers on Wednesday. However, expectations may not have been fair to begin with.

On the earnings front, income was up 8.8% last quarter, from $642 million to $699 million. Per-share profits cranked up from 96 cents to $1.06. Analysts were looking for a profit of only $1.04 per share.

Top-line revenue was up 1%, reaching $7.22 billion, but falling short of analyst expectations of $7.4 billion. It was the fourth straight quarter that sales had grown, though, so it’s difficult to say revenues are the psychological impasse.

So, the snafu is the outlook? Not so fast. The pros think Accenture is on pace to earn 97 cents per share for the current quarter, in-line with the year-ago number. Past that, in what is essentially Q1 of 2013, analysts are looking for a profit of $1.17 per share, which would be a record-breaking quarter for the company.

For the full year (ending in August of 2013), Accenture sees revenue increasing by 5% to 8%, and a per-share profit of somewhere between $4.24 and $4.32, versus prior consensus estimates of $4.26.

So what, pray tell, is the problem? The revenue outlook for the current quarter. Accenture revised its guidance range to somewhere between $6.9 billion and $7.15 billion, versus prior average estimates of $7.14 billion, which compares modestly to the year-ago figure of $7.26 billion.

That’s it — which makes the stock’s sell-off pretty surprising considering the revised sales range still encompasses the previously pegged figure (the prior estimate is just at the upper edge of the new forecasted range). The worst-case scenario is a sales dip of 5%, which certainly isn’t a step in the right direction, but isn’t a catastrophe either. And that’s if you believe the slumping estimates.

Bear in mind that Accenture has topped earnings estimates in 11 — yes, 11 — of the last 13 quarters and has done similarly well with its top-line efforts in that time frame.

Reality Check

The bears may have won the day, pushing ACN down by more than 5% at one point on Thursday. But betting against Accenture may be a risky move.

Assuming 2012’s revenue comes in as expected, Accenture will have posted a second straight year of sales growth. It’s also increased the top line in eight of the past 10 years, and in the two years that didn’t see sales growth (2009 and 2010), the top line contracted by only 8.6% at its worst point.

Accenture is also sickeningly reliable when it comes to producing profits, not booking an operating loss in any year — or any quarter, for that matter — in the past decade. Even more amazing is that income was less affected in 2009 and 2010 than sales were, serving as a testament to just how consistent the technology consulting business can be. Accenture is deeply embedded in its clients’ daily operations, and it can’t be simply brushed away.

Traders who are betting on any of this success faltering now just because of one disappointing quarter (which really wasn’t all that disappointing) may want to rethink things. Accenture has a long track record of earnings and revenue growth, and the per-share earnings forecasts of $4.27 and $4.67 in 2013 and 2014, respectively, are easily within reach relative to the $3.84 Accenture earned in fiscal 2012.

The company has been putting up that kind of growth for years, in good times and bad. The only thing onlookers need to worry about with Thursday’s pullback is how many shares they’re going to buy on this dip.

As of this writing, James Brumley didn’t own securities mentioned here.

Article printed from InvestorPlace Media,

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