On Apr 4, 2014, we initiated coverage on
), the consulting, technology and outsourcing services provider.
The company reported dismal second-quarter results on Mar 27,
2014, wherein both the top and bottom lines missed the Zacks
However, revenues increased on a year-over-year basis
reflecting an increased focus on the Outsourcing business, strong
new bookings. Accenture has been steadily gaining traction in its
Outsourcing business backed by the increased demand for
technology that can improve operating efficiencies and lower
The improvement was mainly due to the growing demand for its
outsourcing solutions in Europe. Enterprises from Europe are
increasingly offshoring jobs to cut costs, improve operational
efficiency and reduce headcount. This bodes well for the company
as deal wins will translate into higher revenues.
Moreover, Accenture's strong balance sheet enables the company
to look for strategic acquisitions and invest in growth
initiatives. As of Feb 28, 2014, the company had cash and cash
equivalents of $3.68 billion and long-term debt of $26.3 million,
bringing the net cash position to $3.65 billion. Additionally,
Accenture's strong operating cash flow has helped it to return
cash through regular quarterly dividend and share
Nonetheless, 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
As a result, competition from strong companies like
Cognizant Technology Solutions Corp.
) is a constant pressure.
Additionally, dismal performance by Accenture's consulting
business remains a concern. Revenues from the consulting business
comprise more than 50% of the total revenue. As consulting is a
high-margin business for the company, any disruption will impact
the overall margin performance.
Currently, Accenture has a Zacks Rank #2 (Buy).
ACCENTURE PLC (ACN): Free Stock Analysis
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