Investment Thesis
Accenture, PLC (ACN) recently reported their earnings for Q1 2019 on December 20, 2018. Accenture beat on both their top and bottom line, announcing revenues of $10.61 billion, beating consensus estimates of $10.52 billion. Their EPS grew to $1.96 beating the consensus estimates of $1.86.
Accenture also raised their dividends, growing from $1.33 per share in FY18, to $1.46 per share in FY19.
Recently in the news, it was announced that their CEO will be stepping down due to health reasons. However, given this information, Accenture does not expect any changes in their outlook for the results of Q2 2019.
Additionally, their share price has risen steadily as they continue to acquire more contracts and projects in the consulting space. Accenture continues to show growth, high returns, and a promising continuation of improved performance.
Accenture vs The S&P 500
Since 2002, Accenture has steadily risen from $26.90 per share to $146.21 per share, a compound average growth rate (CAGR) of 11.90%. Accenture didn’t start paying dividends until FY2006, at which point they started paying one annual dividend of $0.30 per share.
In FY2010, they started paying dividends twice a year and has maintained that frequency of payments since. Accenture’s dividend per share has recently increased up to $1.46 per share in FY2019, which represents a current dividend yield of approximately 1.70%.
Below is a graph that illustrates Accenture’s outperformance over the S&P 500 from 2002 to 2018.
Accenture (represented as Portfolio 1 in Blue) vs the S&P 500.
Source: Created Using PortfolioVisualizer
According to the graph, if you had invested $10,000 in 2002, it would have grown to $67,634 with dividends reinvested. At the same time, the S&P would have netted only $30,501. Accenture has a higher standard deviation than the S&P 500, representing higher price fluctuations.
However, Accenture has more advantageous values against the S&P 500 in all other metrics including Best Year, Worst Year, Maximum Drawdown, Sharpe Ratio, and Sortino Ratio.
Accenture’s Business
Accenture is the world’s leading professional services companies with approximately 459,000 people serving clients in the US, Europe, and Growing Markets. Accenture is comprised of five operating groups: strategy, consulting, digital, technology, and operations. Their revenues come from contracts for services in technology and non-technology services. Their continual growth and income is highly dependent on Accenture’s ability to acquire and retain new contracts.
Accenture is a growing stable company showing increasing revenues from $23,171 million in 2009 to $41,603 million in 2018. They’ve been increasing their dividend per share for more than 10 consecutive years. Their average dividend yield percentage has fluctuated between 1% and 3% as a result of the growth in their stock price. Below is a historical table of Accenture’s dividend payouts.
| Payout Year | $ Per Share | Declared Date |
| FY06 | $0.30 | Thursday, October 6, 2005 |
| FY07 | $0.35 | Monday, September 25, 2006 |
| FY08 | $0.42 | Tuesday, September 25, 2007 |
| FY09 | $0.50 | Wednesday, September 24, 2008 |
| FY10 | $0.38 | Tuesday, March 23, 2010 |
| FY10 | $0.75 | Wednesday, September 30, 2009 |
| FY11 | $0.45 | Wednesday, March 23, 2011 |
| FY11 | $0.45 | Wednesday, September 29, 2010 |
| FY12 | $0.68 | Wednesday, March 21, 2012 |
| FY12 | $0.68 | Monday, September 26, 2011 |
| FY13 | $0.81 | Wednesday, March 27, 2013 |
| FY13 | $0.81 | Monday, September 24, 2012 |
| FY14 | $0.93 | Tuesday, March 25, 2014 |
| FY14 | $0.93 | Wednesday, September 25, 2013 |
| FY15 | $1.02 | Monday, March 23, 2015 |
| FY15 | $1.02 | Tuesday, September 23, 2014 |
| FY16 | $1.10 | Wednesday, March 23, 2016 |
| FY16 | $1.10 | Monday, September 21, 2015 |
| FY17 | $1.21 | Monday, March 20, 2017 |
| FY17 | $1.21 | Tuesday, September 27, 2016 |
| FY18 | $1.33 | Wednesday, March 21, 2018 |
| FY18 | $1.33 | Monday, September 25, 2017 |
| FY19 | $1.46 | Wednesday, September 26, 2018 |
Source: Accenture
Financial Analysis
Income Statement
According to their latest 10-Q filing, Accenture’s sales for the quarter ending November 30, 2018 was $10.61 billion. This was up 7.30% compared to the same quarter in the previous year where it was $9.88 billion. Their operating expenses grew by 7.04% over the same period. At the same time, their operating income rose by 8.73% and Net Income rose by 8.65%. As a result, Accenture’s EPS grew nearly 10%.
| Income Statement | 2018 | 2017 | Change |
| Sales | 10,605,546.00 | 9,884,313.00 | 7.30% |
| Operating Expenses | 8,976,534.00 | 8,386,137.00 | 7.04% |
| Operating Income | 1,629,012.00 | 1,498,176.00 | 8.73% |
| Net Income | 1,291,324.00 | 1,188,542.00 | 8.65% |
| EPS | 2.00 | 1.82 | 9.89% |
Source: 10-Q
Accenture’s growth is attributed mostly to the Communications, Media & Technology and Resources segment of Accenture’s business. The Resources segment grew by 17.63% in revenue while the Communications, Media & Technology segment grew by 11.18%. Communications was driven mainly by growth in Software & Platforms across all geographic regions, but largely from North America. The growth in the Resources segment was driven by growth across all industries, led by Natural Resources and Energy.
| Segmented Data | 2018 | 2017 | Change |
| Communications, Media & Technology | 2,134,576.00 | 1,919,858.00 | 11.18% |
| Financial Services | 2,120,162.00 | 2,142,575.00 | -1.05% |
| Health & Public Service | 1,754,490.00 | 1,683,175.00 | 4.24% |
| Products | 2,928,510.00 | 2,708,798.00 | 8.11% |
| Resources | 1,651,539.00 | 1,403,976.00 | 17.63% |
| Other | 16,269.00 | 25,931.00 | -37.26% |
| Total | 10,605,546.00 | 9,884,313.00 | 7.30% |
Source: 10-Q
In terms of geographic regions, Growth Markets grew the most by 17%. This was led by Japan, Brazil, China, and Singapore. The second largest growth region went to North America which was primarily driven by the United States. Europe revenues increased by 6% which was attributable to Italy, Ireland, U.K., Germany, and Spain.
| Geographic Regions | Revenue Growth | Notes |
| North America | 10% | Majority United States |
| Europe | 6% | Led by Italy, Ireland, U.K., Germany, and Spain |
| Growth Markets | 17% | Led by Japan, Brazil, China, Singapore |
Source: 10-Q
Statement of Cash Flows
Accenture’s operating cash flow grew merely 2.15% compared to the same quarter in the previous year. At the same time, Investing and Financing Cash Outflows had increased over previous years. This was the result of Accenture’s increased spending in business acquisitions, properties, and equipment. They also increased their share repurchase from $563 million to $788 million. They also paid out higher dividends which rose from $853 million to $932 million. Their overall Free Cash Flow decreased from -$432 million to -$707 million.
| Statement of Cash Flows | 2018 | 2017 | Growth |
| Operating Cash Flow | 1,027,508.00 | 1,005,838.00 | 2.15% |
| Investing Cash Flow | (272,868.00) | (258,959.00) | 5.37% |
| Financing Cash Flow | (1,462,168.00) | (1,179,020.00) | 24.02% |
| Free Cash Flow | (707,528.00) | (432,141.00) | 63.73% |
Source: 10-Q
Accenture’s total cash balance was up from the same quarter in the previous year, rising from $3.681 billion to $4.363 billion. They are a cash fluid machine. While Q1 may not show promising cash flow results, their annual results illustrate that the company is still growing their cash pile year-over-year.
Debt
Accenture does not have a large debt balance in relation to the rest of its assets. In Q4 2018, Accenture showed long-term debt of $19.68 million and current debt of $5.34 million. In Q1 2019, Accenture showed a long-term debt balance of $19.90 million and current debt of $4.73 million. Their long-term debt grew by only 1% while their current debt dropped by 11%. From this, Accenture shows low risks in leverage.
Financial Ratios
Given its most recent 10-Q, Accenture showed an operating income of $1.629 billion and paid an interest expense of $4.51 million. This represents an interest coverage ratio of 361. In other words, Accenture’s most recent operating income allows the company to cover over 361 quarters worth of interest expenses. If we analyze Accenture’s latest annual filing, Accenture generated an operating income of $5.841 billion at the end of August 2018. They paid out an interest expense of $19 million. This represents an interest coverage ratio of 298.94 in terms of years, much higher than 361 quarters.
Additionally, Accenture continues to grow its cash balance which is now $4.363 billion. This reduces the company’s risk in market fluctuations and crashes and allows Accenture continue business.
It’s Enterprise Value / EBITDA ratio is currently 12.96 on Yahoo! Finance.
Its debt-to-equity ratio is 0.19 which shows that it has very little debt compared to its equity.
It’s current ratio is 1.33 showing that it’s a highly liquid company.
Accenture’s return on assets has been steadily rising over the last 13 years, starting from 10% up to its current ROA of 17%.
Source: Macrotrends.net
Technicals
Based on a technical level, Accenture has fallen below the 20-Day Moving Average on the monthly chart, indicating that it’s no longer continuing its bullish run. This was the result of the market dip back in December as shown by that last red candle in 2018.
From this perspective, it’s currently lingering in a no-decision territory where there’s no conviction of it being bullish or bearish. Its next major support level would be the 50 DMA which is currently around the $126 price point. This $126 price also appears to be a previous resistance level that Accenture broke through back in July 2017. We’ve seen many instances of resistance levels becoming new support levels. This coupled with the 50 DMA at that same price point could be a potential buy-in location.
Longer term investors won’t care about its current price level if they’re expecting continual future growth. However, we may have to observe Accenture’s trading levels before pulling the trigger and entering into a position.
Source: FreeStockCharts.com
Dividend Portfolio Performance
Owning 100 shares of Accenture in your portfolio during the last 5 years would have generated $1,345 total in dividends. Given that Accenture was trading around $65.38 just 5 years ago, this dividend amount of $1,345 alone represents a return on investment of 21%, not counting capital gains. If we include capital gains, then the investment in Accenture would have nearly tripled.
| Price Per Share | Dividend Per Share | Payment Date | Market Value | Dividend Payment |
| $172.97 | $1.46 | 11/15/2018 | $17,297.00 | $146.00 |
| $136.64 | $1.33 | 5/15/2018 | $13,664.00 | $133.00 |
| $162.03 | $1.33 | 11/15/2017 | $16,203.00 | $133.00 |
| $116.65 | $1.21 | 5/15/2017 | $11,665.00 | $121.00 |
| $126.48 | $1.21 | 11/15/2016 | $12,648.00 | $121.00 |
| $97.86 | $1.10 | 5/13/2016 | $9,786.00 | $110.00 |
| $107.66 | $1.10 | 11/13/2015 | $10,766.00 | $110.00 |
| $79.60 | $1.02 | 5/15/2015 | $7,960.00 | $102.00 |
| $88.21 | $1.02 | 11/17/2014 | $8,821.00 | $102.00 |
| $75.87 | $0.93 | 5/15/2014 | $7,587.00 | $93.00 |
| $82.97 | $0.93 | 11/15/2013 | $8,297.00 | $93.00 |
| $65.38 | $0.81 | 5/15/2013 | $6,538.00 | $81.00 |
| Total Dividends Received | $1,345.00 |
Source: Created by Author
Conclusion
In conclusion, Accenture has shown steady growth and revenues over the years. It continues to expand and acquire new contracts in both the emerging markets and the US. Its stock has been paying consecutive dividends for years and their company continues to stock pile cash.
Because of these factors, Accenture is a valuable stock to own in these times of market and Presidential uncertainty. In addition, having some cash on the sidelines can be strategic. Volatility levels have risen lately as shown by the VIX. Regardless of these factors, Accenture survived the last financial crisis and has outperformed by a multitude of factors.