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Shares of Accenture to continue growth

I remain upbeat about the shares of Accenture (ACN), a global management consulting, technology services and outsourcing firm. The company’s financials for its fiscal 2016 fourth quarter were solid, with both revenues and earnings surpassing consensus estimates. Net revenues increased 9% y-o-y in local currency driven by improvements in all segments and almost all geographical markets. Operating income grew 9.2%, and adjusted earnings per share jumped 14% to $1.31. In FQ4, Accenture repurchased 5.6 mn shares for $640 mn. Besides, the company raised its semi-annual cash dividend by 10% to $1.21 per share, which offers a healthy annualized dividend yield of 2%.

Accenture also provided encouraging guidance for fiscal 2017. Net revenue growth is expected in the range of 5-8% in local currency, and EPS is forecast to be within $5.75-5.98. For fiscal 2017, the company expects operating margin of 14.7-14.9% and effective tax rate of 22-24%. Accenture also anticipates operating cash flow in the range of $4.6-4.9 bn.

At the beginning of December, Accenture completed the acquisition of the privately held cybersecurity firm Defense Point Security well known for providing advanced cyber defense solutions to the US federal government. The deal is expected to expand Accenture’s federal services capabilities as well as strengthen its leadership position in providing cybersecurity solutions to the US departments.

To note, M&A deals have been an important part of Accenture’s growth strategy as they allow the company to diversify its offerings and expand operating markets. So far this year, Accenture either has completed or has signed about 12 acquisition deals across various business segments, including IT security, CRM capabilities and strategy consulting. Strong cash balance and cash flows, we believe, will continue to support the company’s inorganic growth strategy going forward.

I expect shares of Accenture to continue to rise, with medium-term target at $135.