We issued an updated research report on
) on Aug 8, 2014 post its solid third-quarter results. Revenues
also improved on a year-over-year basis reflecting an increased
focus on the Outsourcing business, new bookings and continuous
return of shareholders value. Moreover, the company provided a
Accenture's solid performance across insurance, banking and
healthcare segments reflects strong demand for its services,
boosting long-term growth prospects. Accenture has been steadily
gaining traction in its Outsourcing business. The success is
primarily attributed to the increase in demand for technology that
can improve operating efficiencies and save costs. The upward trend
continued during the first nine months of fiscal 2014, with
outsourcing revenues growing 6% on a year-over-year basis. The
improvement was mainly due to the growing demand for Accenture's
outsourcing solutions driven by most of its operating industry
groups across all geographic regions.
Over the past couple of years, Accenture has made several
acquisitions to expand its product and service offerings and cater
to a diverse clientele. During fiscal 2013, Acquity Group Ltd. - a
digital marketing and technical services provider - was acquired
along with other smaller companies that complement and synergize
with Accenture's current operations. Acquisitions are likely to
enable Accenture to enter new markets, diversify and broaden its
product portfolio and maintain its leading position. Moreover, the
company's continued acquisitions are expected to be a good
contributor to its revenue stream.
Also, Accenture has a strong balance sheet. As of May 31, 2014,
the company had cash and cash equivalents of $4.05 billion and
long-term debt of $26.5 million, bringing the net cash position to
$4.02 billion, higher than $3.65 billion (net cash) in the previous
quarter. This enables the company to look for strategic
acquisitions and invest in growth initiatives. Strong operating
cash flow has helped Accenture to return cash through regular
quarterly dividend payment and share repurchases.
Nonetheless, revenue decline in Accenture's Consulting business
remains a concern. In fiscal 2013, consulting revenues decreased 1%
on a year-over-year basis due to lower revenues across its five
operating groups as clients continue to defer or reduce investments
in consulting services. Although the company's consulting revenues
recorded a modest increase in the last reported quarter, we will be
more constructive if this phenomenon continues in the forthcoming
quarters as well.
Moreover, Accenture's market share and revenues necessarily
depend on client relationships and the number of contracts it
secures. This, along with the limited scope for product
differentiation, makes the renegotiation of large contracts
extremely important. As a result, competition from major players
like Genpact Limited (
), Cognizant Technology Solutions (
) and Infosys (
) is a constant pressure.
Currently, Accenture has a Zacks Rank #3 (Hold).
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