sector: information technology buy · 2013. 2. 8. · valuation provides a good long-term...
TRANSCRIPT
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Applied Portfolio ManagementAnalysts: Brenna Koch, Chris Landqvist,
Justin Pippitt, Kelli Coldiron, Wei Pi
Report Date: 5/7/2012
Market Cap (mm) $41,528 Annual Dividend $1.35 Beta (S&P 500 Index) 0.10
Return on Capital 44.2% Dividend Yield 2.1% Annualized Alpha 24.8% Compared With:
EPS (ttm) $3.90 Price/Earnings (ttm) 16.5 Institutional Ownership 5.3% Oracle Corporation
Current Price $64.44 Economic Value-Added (ttm) $2,059 Short Interest (% of Shares) 1.2% Cognizant Technology Solutions
12-mo. Target Price $70.00 Free Cash Flow Margin 13.4% Days to Cover Short 2.2 and the S&P 500 Index
Business Description
Total Revenue 0.3% Free Cash Flow -1.8%
EBIT 5.3% Total Invested Capital 11.6%
NOPAT 6.3% Total Assets 8.3%
Earnings Per Share 8.4% Economic Value-Added 5.1%
Dividends Per Share 31.0% Market Value-Added 19.0%
2007 2008 2009 2010 2011
11.7% 12.0% 13.4% 13.6% 13.9%
12.1% 11.0% 14.6% 14.3% 13.4%
5.6% 9.9% 6.1% 5.1% 5.5%
1.1% 1.8% 1.8% 1.5% 1.7%
2007 2008 2009 2010 2011
2.06 2.77 2.55 2.79 3.53
0.42 0.50 0.75 0.83 1.13
2.74 3.51 3.28 3.24 3.99
2.31 2.62 2.82 2.80 2.35
Datasource: Capital IQ
Margins and Yields
Operating Margin
Per Share Metrics
Earnings
NOPAT
Free Cash Flow
Dividends
Free Cash Flow Margin
Earnings Yield
Dividend Yield
Accenture plc operates as a management consulting, technology
services, and outsourcing company. Its management consulting services
include customer relationship management, finance and performance
management, process and innovation performance, risk management,
strategy, supply chain management, and talent and organization
performance services. The company also provides various system
integration consulting services comprising enterprise solutions and
enterprise resource planning, industry and functional solutions,
information management services, cloud computing, custom solutions,
software as a service, mobility solutions, and business solutions based
Investment Thesis
ANNUALIZED 3-YEAR CAGR
Economic slowdown resulting in declining revenue growth is a
concern for many companies. Helping clients to increase efficiency is
one of ACN’s biggest strengths. Having a global footprint is essential
to take advantage of these opportunities in declining areas and
boosting growth in urbanizing and under developed markets. Despite
slow growth in Total Revenue (mostly due to contract cancellation
stemming from the 2008 recession), ACN has been able to grow EBIT,
NOPAT, and EPS during fierce economic conditions. Strong value
creation through M&A, a healthy ROIC-to-WACC spread of 35.3%, a
strong commitment to rewarding shareholders via dividends, and low
valuation provides a good long-term investment opportunity.
Accenture plc Sector: Information Technology BUYACN
-20%
-10%
0%
10%
20%
30%ACN ^SPX
-40%
-30%
-20%
-10%
0%
10%
20%
30%ACN ORCL CTSH
0
5
10
15
20
25
2006 2007 2008 2009 2010 2011
Price/Earnings Price/Free Cash Flow
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
2006 2007 2008 2009 2010 2011
EBIT Net Operating Profit After Tax
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$0
$500
$1,000
$1,500
$2,000
$2,500
2006 2007 2008 2009 2010 2011
Economic Value-Added Market Valued-Added
0%
10%
20%
30%
40%
50%
60%
2006 2007 2008 2009 2010 2011
ROA ROE ROIC
-
20 28
ACN DateShare
Price
PRVit Score
(vs Market)
Industry
Median
4-May-12 $62.61 90 60
95
95
ACN 25th 50th 75th % Russell
6.8% -5.3% 0.6% 4.6% 83
50.4% -3.4% 0.7% 4.8% 99
86
ACN 25th 50th 75th % Russell
12.2% -1.0% 0.6% 2.3% 94
4.9% -0.3% 0.6% 2.1% 89
8.4% -1.9% 0.5% 2.5% 92
9
9
ACN 25th 50th 75th % Russell
31% 36% 46% 57% 14
0.3% 2.0% 4.4% 11.7% 1
6
ACN 25th 50th 75th % Russell
43% 6% 0% -10% 2
57% 54% 23% 11% 24
31% 8% 26% 45% 57
0.7 0.7 1.9 3.4 23
62
91
ACN 25th 50th 75th % Russell
116% -8% 36% 126% 73
753% -7% 29% 114% 97
50
ACN 25th 50th 75th % Russell
7.6 5.5 7.5 10.2 52
16.6 14.7 19.8 27.3 34
17% -13% 20% 62% 48
No part of this report may be reproduced or distributed in any form except to authorized licensees of EVA Dimensions LLC Copyright 2010 All Rights Reserved
MVA Margin
MVA Spread
V2 Wealth Multiples Valuation multiples to cash flow, earnings, EVA
EBITDAR Multiple
NOPAT Multiple
Future Growth Reliance
The PRVit Matrix: depicts a company’s PRVit score by plotting its “intrinsic” value score – what PRVit rates the firm is truly
worth based on its risk-adjusted performance, i.e., its comparative P-R score – against its actual valuation score – which
reflects the company’s current trading multiples. Companies rated “Hold” plot along the diagonal, which is where the firms’
actual valuation multiples align with their intrinsic values. “Buys” plot in the upper right green zone, which is where PRVit rates
the firms as worth more than their current share values, and “Sells” appear in the lower left red zone, where the firms’ P-R
scores fall short of their V scores. The top grid rates the firms against the entire market, and the lower one ranks them against
industry peers (which is the basis for the official “PRVit” score).
EVA Dimensions LLC l 15 Watersedge Court l Locust Valley, NY 11560 l Support Hot Line 1.888.500.3560 l [email protected]
V1 Wealth Ratios Valuation multiples to book capital (as adjusted)
EVA Margin Variability
R2 Vulnerability Leveraged, negative cash flow firms are suspect
Free Cash Flow Rate
Op Cash Gen Return
Total Debt/Total Capital
Total Debt/EBITDAR
Valuation Score (V) Lower is better
Stock Price Volatility
P2 Trend The growth rate in the firm's economic profit (its EVA)
EVA Momentum (vs Cap)
3 Year Trend (ΔEVA/Cap)
Last Quarter (ΔEVA/Cap)
Risk Score (R) Lower is better
R1 Volatility Variability in stock price and the EVA profit margin
EVA Spread (EVA/Capital)
PRVit® -- the Performance Risk Valuation investment technologyfrom EVA Dimensions LLC
PRVit® is powered by EVA® and EVA Momentum®,registered marks of EVA Dimensions LLC
ACCENTURE PLC IT ServicesPRVit Score(vs Industry)
Accenture plc operates as a management consulting, technology services, and outsourcing company. Its
management consulting services include customer relationship management, finance and performance
management, process and innovation performance, risk management, strategy, supply chain management, and
talent and organization performance services. The company also provides various system integration consulting
services comprising enterprise solutions and enterprise resource planning, industry and functional solutions,
information management services, cloud computing, custom solutions, software as a service, mobility solutions,
and business solutions based on Microsoft Windows Server and other .NET technologies; technology consulting
services consisting of IT strategy and transformation, enterprise architecture, infrastructure consulting, IT
security consulting, application portfolio optimization and renewal, digital solutions, and research and
development; IT outsourcing services, including application outsourcing services, such as application testing,
application management of enterprise-wide software programs and capacity services, and application
enhancement and development; and infrastructure outsourcing services, such as IT spend management, data
center, service desk, security and network, and workplace services. In addition, it offers business process
outsourcing services for specific business functions and/or processes comprising finance and accounting, human
resources, learning, and procurement, as well as various transaction-processing services comprising Internet
reservations, airport check-in, revenue management and accounting, crew scheduling and management, and
disruption recovery. Accenture plc primarily serves the communications, electronics, high technology, media, and
entertainment industries in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. The company was
founded in 1995 and is based in Dublin, Ireland.
93ACN's outstanding performance (95th percentile vs. Russell 3000
companies), coupled with its very low risk (9th percentile), indicates a very
high intrinsic valuation is warranted (99th percentile), which compared to its
actual market valuation (62nd percentile at its $62.61 share price) makes
for a PRVit score of 90th percentile vs. the market.
ACN's PRVit score is at the 93rd percentile of all firms in its industry, which
leads to a recommendation to Buy. ACN is more attractively priced in
relation to its true value than all but a few of the stocks in its industry.
Performance Score (P) Higher is better
P1 Profitability Financial strength in generating a return on capital over the full cost
EVA Margin (EVA/Sales)
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
2/07 2/08 2/09 2/10 2/11 2/12
Sales vs. Capital
Sales Capital
0%
10%
20%
30%
40%
50%
60%
70%
2/07 2/08 2/09 2/10 2/11 2/12
ROC vs. COC
ROC COC
$0
$500
$1,000
$1,500
$2,000
$2,500
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
2/07 2/08 2/09 2/10 2/11 2/12
Market Value Added (MVA) vs. EVA
MVA EVA
0
10
20
30
40
50
60
70
80
90
100
2/07 2/08 2/09 2/10 2/11 2/12
PRVit Scores
Vs Market Vs Industry
ACN
0
20
40
60
80
100
0 20 40 60 80 100
Intr
insic
Va
lue
Vs.
Ru
sse
ll 3
00
0
(P(9
5)-
R(9
)=9
9th
Pe
rce
nti
le)
Actual Valuation Vs. Russell 3000
(V=62nd Percentile)
ACN PRVit Score Vs Market 90
ACN
0
20
40
60
80
100
0 20 40 60 80 100
Intr
insic
Va
lue
Vs.
Ind
ustr
y
(P(8
5)-
R(1
0)=
99
th P
erc
en
tile
)
Actual Valuation Vs. Industry
(V=42nd Percentile)
ACN PRVit Score Vs Industry 93
Sell 0-19
Underweight 20-39
Hold 40-59
Overweight 60-79
Buy 80-100
-
REPORT | NYSE: ACN
Analysts:
Chris Landqvist | Justin Pippitt | Kelli Coldiron | Wei Pi
The Washburn Student Investment Fund (SIF) uses a “Top Down” philosophy. The first step in
the process is to identify the Macro Economic environment. By analyzing the 21 Lagging,
Coincident and Leading Indicators we form a sense of where the economy has been, its current
state and where it could be heading in the future. With this information, we concentrate on which
sectors would be beneficial to include or exclude from the fund to maximize efficient use of our
capital. A synopsis of the Washburn SIF Macro Economic outlook, which was performed in
February 2012, is featured below.
Macro Economic Outlook
According to our process, the economic outlook remains weak. The slow but steady growth from
the previous year has turned stagnant, further slowing growth for the economy. As this year
continues, investors remain fearful and
global instability has increased.
Although economy was in early expansion,
the outlook points to a leveling off and a
potential decline. Based on our outlook of
the financial and business cycle, now
would be a phase where investors normally
buy into services, utilities, and financial
segments of the market. Although it is not the typical time to enter into the information
technology segment of the market, ACN, as
will be shown, is seeing increased demand in
regions of slowing economic growth. In
previous downturns, ACN has been able to
generate strong revenue growth while other
companies struggle to grow. As businesses in
the United States and Europe look to increase
their efficiency, they are turning to ACN to
provide the services necessary to survive the
economic struggle.
Recommendation: BUY Market Cap: $41.53 billion Current Price: $64.44
Sector: Information Technology Dividend Yield: 2.1% 12-month target price: $79.26
Sub-Sector: IT Consulting & Other Services P/E Ratio: 16.50 Beta: 0.81
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REPORT | NYSE: ACN
Analysts:
Chris Landqvist | Justin Pippitt | Kelli Coldiron | Wei Pi
Currently, the student investment portfolio is largely underweight in the Information Technology
sector by 10.2%. Using strong screening requirements to find a stock that fits the needs of the
student investment portfolio, (a low beta, high dividend yield, and good fundamentals) ACN was
analyzed and found to fit these
requirements well. Acquiring ACN
stock would help reduce the
underweight in the information
technology sector, while at the same
time further reducing the beta of the
overall portfolio, and providing a
strong dividend given the sector.
Company Summary
ACN is an information technology company that provides three key services. They offer global
management consulting, technology services, and outsourcing capabilities. These services are
further broken into five operating groups that consist of communications and high tech, financial
services, health and public services, products, and resources. ACN is a service based company
who provides additional personalized, hands-on support to all of its customers in order to
differentiate between competitors. Many of ACN’s top customers have ACN employees placed
on-site to support the customer’s needs. ACN’s revenue stream comes from two areas: Consulting
(51% of Total Revenues) and Outsourcing (49% of total revenues). As a global company, ACN is
widespread in its reach; located in 54 countries around the world and employing 236,000
employees that offer custom care to their clients. The company is domiciled in Ireland and traded on
the New York Stock Exchange (NYSE). ACN caters to mid-sized companies and governments,
looking to improve their processes and efficiencies. Well diversified in their revenue generation,
ACN is able to maintain a strong, balanced company and grow. In addition, ACN is investing
through M&A which has proven to generate positive revenue. With a strong brand name, global footprint
and cutting edge technology, ACN is well positioned to meet the needs of its clients seeking to expand
internationally and face the demands of an urbanizing population.
Market Profile
IDC, a market research firm sees worldwide consulting services from 2010 to 2015 to rise by a
CAGR of 4.7%. IDC believes one of ACN’s strongest performing segments, worldwide IT
outsourcing, will expand by 4.9% annually during this same period.
Other segments ACN performs in, Business and IT consulting, are also expected to expand by
7.0% and 3.5% respectively. We believe because of this, ACN is positioned well for future
growth through at least 2015.
-
REPORT | NYSE: ACN
Analysts:
Chris Landqvist | Justin Pippitt | Kelli Coldiron | Wei Pi
ACN’s new bookings for 2011 totaled nearly $8 billion, led by especially strong bookings in
outsourcing. We feel that ACN’s broad technological expertise and large geographic footprint
will continue to help companies that are progressively looking for more ways to trim costs
associated with operating on a global scale.
Investment Thesis
Economic slowdown resulting in declining revenue growth is a concern for many companies.
Helping clients to increase efficiency is one of ACN’s biggest strengths. Having a global
footprint is essential to take advantage of these opportunities in declining areas and boosting
growth in urbanizing and under developed markets.
Despite slow growth in Total Revenue (mostly due to contract cancellation stemming from the
2008 recession), ACN has been able to grow EBIT, NOPAT, and EPS during fierce economic
conditions.
Strong value creation through M&A, a healthy ROIC-to-WACC spread of 35.3%, a strong
commitment to rewarding shareholders via dividends, and low valuation provides a good long-
term investment opportunity.
According to independent reports, the need for the services rendered by ACN is increasing on a
global perspective. Especially important is to highlight that two of the main revenue generating
geographical areas, the United States and Europe, is experiencing increased demand. Although
both areas are experiencing a slowdown in economic growth, companies are looking to increase
efficiencies in order to stay competitive when revenues are declining. Since this is one of ACN’s
main competencies, ACN has seen increasing orders to fulfill these needs. This is also evident in
the need for increased headcount. In 2011, ACN grew their number of employees by 16% to
meet the demand for its customers. This is an essential highlight for a company that historically
works to increase their own efficiency as well. This phenomenon corroborates the increased need
for ACN's worldwide services.
ACN meets all requirements for a BUY recommendation into the Washburn Student Investment
Fund. An additional benefit of the investment is that it decreases the current underweight in the
Information Technology sector.
Historical Analysis
ACN has positioned itself well financially. As we can see from the three year annualized
compound average growth rates, they have been able to grow both EBIT and NOPAT, despite
relatively flat revenue growth over the same period. EPS, DPS, Total Invested Capital, Total
Assets, EVA, and MVA also all saw strong growth over this same period.
-
REPORT | NYSE: ACN
Analysts:
Chris Landqvist | Justin Pippitt | Kelli Coldiron | Wei Pi
The decrease in revenue for 2009 can be attributed to the adjustments companies made to cut
costs wherever possible after the beginning of the recession in 2008. At the time, ACN had a
contract arraignment with several customers that allowed them to sever contracts with little to no
penalties, which made up most of their 14.7% decrease in revenues from 2008 to 2009. Since
then, ACN has restructured its contracts to favor longer, more concrete terms. For the fiscal year
of 2011, total revenues started growing again and were up 18.3% from 2010. Outside of 2008-
2009, Net Income also made consistent small gains.
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
2006 2007 2008 2009 2010 2011
Total Revenue Net Income
The incremental improvements in operating margins have shown that management is intent on
increasing efficiencies. From 2006 to 2011, operating profit margins increased from below 10%
to nearly 15%. Analysts view this commitment to containing costs very favorably.
-
REPORT | NYSE: ACN
Analysts:
Chris Landqvist | Justin Pippitt | Kelli Coldiron | Wei Pi
0%
5%
10%
15%
20%
25%
30%
2006 2007 2008 2009 2010 2011
Gross Profit Margin Operating Profit Margin
Earnings per share have increased 9 out of the past 10 years, with a 28% increase in the last year
alone. Dividends per share have increased every year for the past six years and the dividend yield
is stable at around 2%. Even though this dividend yield is low for our investment process, we
feel that ACN’s commitment to increasing dividends, combined with the fact that relatively few
other IT sector companies even pay out a dividend, makes this company more attractive.
Not only does ACN have steadily growing Earnings Per Share, but they also beat the Street
estimates regularly. As you can see below, ACN has beaten analyst expectations every quarter
for the past 5 quarters.
-
REPORT | NYSE: ACN
Analysts:
Chris Landqvist | Justin Pippitt | Kelli Coldiron | Wei Pi
Estimated Range Actual Earnings
ACN currently has over $5 billion cash on hand, and a relatively large and stable Free Cash Flow
Margin of over 13%. They also have virtually no long-term debt to speak of, which along with
the large amount of cash on hand and excellent cash flows, leaves them with a lot of options to
either make investments in the company, or return profits to investors. Again, we can see clear
signs of continually improving efficiencies by looking at their net profit margins, which are
increasing despite the uneven revenue growth.
0%
2%
4%
6%
8%
10%
12%
14%
16%
2006 2007 2008 2009 2010 2011
Net Profit Margin Free Cash Flow Margin
Their large Free Cash Flows have been used to make smart investments, which can be seen in
their Total Invested Capital 3-year CAGR of 11.6%. We can demonstrate that they are investing
wisely by looking at the strong performance of their ROIC and EVA (44.2% in 2011 and a 3-
year CAGR of 5.3% respectively).
-
REPORT | NYSE: ACN
Analysts:
Chris Landqvist | Justin Pippitt | Kelli Coldiron | Wei Pi
0%
10%
20%
30%
40%
50%
60%
2006 2007 2008 2009 2010 2011
ROA ROE ROIC
We see good upward trends in ACN's ROA. ROE and ROIC levels are also extraordinarily high.
Not only that, but with a WACC of 8.9%, their ROIC-to-WACC spread is increasing and rather
high at 35.3%, which shows that ACN can create a significant amount of shareholder value even
if future growth remains modest.
All of this has led to ACN’s ability to consistently generate EVA. More recently, the market has
caught on to their value, with MVA nearly doubling in the last year alone. In fact, over the last
year, the stock price has experienced a nearly 25% increase, beating the performance of the
S&P500 by nearly 22%.
SWOT and Porters Review
ACN is a company that competes in the highly competitive, price sensitive, Information
Technology business alongside several other strong players. Clients are willing to pay a premium
-
REPORT | NYSE: ACN
Analysts:
Chris Landqvist | Justin Pippitt | Kelli Coldiron | Wei Pi
for establishing long term relationships with strong brand name suppliers. Although there is an
excess supply there is also high switching cost involved when going from one supplier to
another. Having a global footprint is important for the clientele that ACN serves.
The industry as a whole is very volatile and the nature of technology makes is easy for a
newcomer to enter the market fairly cheap without having to face a lot of regulation or policies.
ACN is well positioned to quickly adhere to the needs of their clients worldwide. Having secured
more “Diamond Clients” and establishing presence in “Hot Spots” they are taking advantage of
the early entrance stage of developing countries.
Although finding a skilled workforce is becoming increasingly difficult, ACN is well positioned
for M&A activity. Having a great Brand Name, strong cash deposits and zero debt allows them
to act quickly if a situation arises or new technology needs to be acquired.
SWOT
S • New contract structure • Increased need from US/EURO • No debt • Internal software solution
W • Foreign exchange loss • Domiciled in Ireland • Limited ability to protect Intellectual rights
O • Growth in emerging markets • Increased demand for out-sourcing • Global footprint satisfies demand for increased efficiency
T • Qualified workers • Decreased government spending • SAP starts competing same market segment
-
REPORT | NYSE: ACN
Analysts:
Chris Landqvist | Justin Pippitt | Kelli Coldiron | Wei Pi
Porter’s Five Forces
SP • Numerous suppliers • Price sensitivity is high • Similarity in products
• Low
BP • Excess demand • High switching costs • Brand name
• Low
CR • Numerous competitors • Other strong brands • Specialized local competitors
• High
TS • Lack of uniqueness • Competition more vertical integration • High
NE • Fairly cheap • Less regulation • Nature of technology
• Medium
Model Assumptions
Our valuation analysis for ACN was conducted using conservative modeling assumptions. Our
discounted cash flow model estimates ACN’s intrinsic value at $82.85 per share for 2011,
indicating ACN is currently undervalued, even in light of conservative expectations for its future
revenue growth and cost structure.
Income Statement Inputs
Revenue Growth: Outside of the negative revenue growth of 14.8% in 2009, which was affected
by a recessionary economy and weak contracts that many customers were able to cancel, ACN
has been able to increase its revenue growth rates for the last three years. Based on ACN’s strong
exposure to its global market, cloud computing, and outsourcing, ACN has strong potential to
grow its revenue in the future. Based on extensive analysis of ACN’s prospects, we chose to
grow its revenue by 14% in 2012 and slowly taper it down to a conservative long-term growth
rate of 2% to build in a margin of safety.
Dividend Growth: ACN has a strong average dividend growth of 26.3% over the last five years.
We chose to grow dividends slightly slower at 20% for 2012 to increase the margin of safety and
then gradually tapered it down to a long-term growth rate of 3.5%.
-
REPORT | NYSE: ACN
Analysts:
Chris Landqvist | Justin Pippitt | Kelli Coldiron | Wei Pi
Balance Sheet Inputs
Total Current Assets: Based on ACN’s expanding operational efficiency, it should continue to
decrease its current assets (as a percentage of sales) to 35%.
Total Debt: ACN is well positioned for M&A activity. ACN also has a strong brand name, large
cash deposits, and zero debt, which allows them to act quickly if a situation arises or new
technology needs to be acquired.
Weighted Average Cost of Capital Assumptions
A WACC of 8.9% was calculated using total debt cost of 4.5% and Cost of Equity of 8.9%. To
maintain conservatism in our model, we increased the current beta of 0.81 to an estimated beta of
0.95. We also set the long-term growth rate to a conservative 2%.
Dividend Discount Model
Maintaining the beta of 0.95 and dividend growth forecast, we calculated a per share intrinsic
value of $34.08 based off of the present value of future dividends alone. This accounts for more
than half of ACN’s current market price and reduces the risk associated with the investment.
-
REPORT | NYSE: ACN
Analysts:
Chris Landqvist | Justin Pippitt | Kelli Coldiron | Wei Pi
Financial Analysis
ACN has outstanding historical performance, a strong financial position, and great exposure to
future growth areas; which are illustrated through high profitability, strong value creation, and a
wide ROIC‐to‐WACC spread.
High Profitability
ACN has been consistently growing their earnings per share every year for the last six years at a
historical average rate of 13%. Based on a conservative input of ACN’s future forecasts, we
believe ACN can grow its EPS at a rate of 6% for the next five years. Because ACN has the
ability to generate high EPS, ACN has been able to sustain its DPS at an average growth rate of
26% for the last six years. ACN should manage to grow both earnings per share and dividends
per share at sustainable levels through 2016.
-
REPORT | NYSE: ACN
Analysts:
Chris Landqvist | Justin Pippitt | Kelli Coldiron | Wei Pi
Strong Value creation
Over the past six years, ACN has generated large positive free cash flow. ACN has grown its
FCF/Share at an average growth rate of 17% over the last six years. Our forecast has ACN’s
FCF/Share growing at an average annual growth rate of 5%. Historically, ACN has grown its
NOPAT at an average rate of 11%. Following the conservatism and margin of safety, we forecast
NOPAT to grow at an average yearly growth rate of 6%.
NOPAT and FCF/Share (millions)
Economic Value Added
ACN shows a strong growth in its EVA. In 2010, ACN had an EVA of $1.6 billion and has
grown its EVA by 25% to $2.1 billion in 2011. ACN has consistently grown its EVA at an
average rate of 16% for the last six years. Our forecast tightens EVA to $2.2 billion and $2.4
billion in 2012 and 2013, respectively. This slower growth is again due to our conservative
modeling assumptions.
EVA and MVA (millions)
-
REPORT | NYSE: ACN
Analysts:
Chris Landqvist | Justin Pippitt | Kelli Coldiron | Wei Pi
Market Value Added
In 2010, ACN’s MVA was $31.8 billion. For 2011, this metric grew to $36.8 billion. ACN’s
MVA is projected to continue its growth at an average rate of 8% through 2016.
Value Spread: ROIC to WACC
ROIC
Historical average return on invested capital was 44.85% for ACN. In 2011, ACN generated
their return on invested capital at 44.20%. For our forecast, we continue the strong ROIC at an
average of 47.30% through 2016.
WACC
Weighted‐average cost of capital was calculated at 8.90%. As described above, the beta was increased 0.95 to maintain conservatism.
-
REPORT | NYSE: ACN
Analysts:
Chris Landqvist | Justin Pippitt | Kelli Coldiron | Wei Pi
Value Spread (ROIC to WACC)
ACN’s historical average value spread was 35.95%. In 2011, ACN’s value spread was also at a
high level of 35.30%. ACN forecasted value spread averages 38.40%. Even with a conservative
valuation model, ACN displays considerable potential to further grow its value creation beyond
our forecasted ROIC‐WACC spread measure.
Intrinsic Valuation
Based on the SIF valuation model of ACN’s economic fundamentals, ACN has been
undervalued by at least 50% looking back the last five years. Our model also shows that this per
share intrinsic value will continue to grow through 2016E.
-
REPORT | NYSE: ACN
Analysts:
Chris Landqvist | Justin Pippitt | Kelli Coldiron | Wei Pi
We have adjusted the ratios below to further increase our margin of safety. These adjustments
fall more in-line with industry averages and helps to not overstate intrinsic value.
Even with these conservative modeling assumptions, nearly every valuation estimate we look at
shows that ACN is undervalued. The present value of future dividends accounts for over half of
the current price of the stock alone. This mitigates a large portion of the risk in this investment.
-
REPORT | NYSE: ACN
Analysts:
Chris Landqvist | Justin Pippitt | Kelli Coldiron | Wei Pi
Valuation Comparison
EVA Dimensions LLC, a New York based company that provides the industry with their
proprietary ranking system of stock via the EVA metric allows us to asses another resource to
further strengthen our conviction on a stock. Note that this is not a basis of our decision making
but merely a corroboration of the research that has already been conducted.
The PRVit score for ACN shows how they compare to the market as a whole, what the median
of the Information Technology industry is, and how they compare to the industry. Being scored
above the 90th percentile indicates that the potential value of the stock is yet to be priced in.
Looking at the EVA spread, we can see that ACN scores in the 99th percentile, which shows that
the company does not need additional capital to create value or operate their business. This ties
together well with having zero debt on their balance sheet
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REPORT | NYSE: ACN
Analysts:
Chris Landqvist | Justin Pippitt | Kelli Coldiron | Wei Pi
The low Risk Score indicates how “safe” investment is in comparison to other stocks. This again
displays the depth of fundamentals within ACN.
Looking at the EVA spread, we can see that ACN scores in the 99th percentile, which shows that
the company does not need additional capital to create value or operate their business. This ties
well together with having zero debt on their balance sheet
The low Risk Score indicates how “safe” investment is in comparison to other stocks. This again
displays the depth of fundamentals within ACN.
The Y-axis displays the intrinsic value while the X-axis displays relative valuation versus the
Industry and Market respectively. Receiving a perfect score on both axes would position a
company in the top right quadrant of the graph.
Looking at both graphs, the company scores in the 99th percentile in intrinsic value which
strengthens the fundamental assessment previously presented. The relative valuation is not as
strong, indicating that it’s currently not a great of a bargain.
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REPORT | NYSE: ACN
Analysts:
Chris Landqvist | Justin Pippitt | Kelli Coldiron | Wei Pi
ROC versus COC is diverging, another great sign for value creation that can then be passed on to
shareholders.
ACN Client Success Stories
ACN uses its breadth of industry knowledge and geographic reach to provide complex solutions
to companies all over the world. Some of their more recent success stories highlighted below:
Helped Volkswagen continue its journey to high performance by introducing new payroll
and master data auditing capabilities
Accenture helped Faurecia design, build and deploy a core SAP enterprise resource
planning (ERP) solution, as well as a set of business processes, across its worldwide
operations.
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REPORT | NYSE: ACN
Analysts:
Chris Landqvist | Justin Pippitt | Kelli Coldiron | Wei Pi
Accenture helped KLM migrate to an open source platform in the quest to reduce costs
and increase flexibility—both key enablers of high performance in the rapidly-changing,
competitive airline industry.
In response to the European parliament’s decision to include the aviation industry in the
Emission Trading Scheme (ETS), Accenture helped KLM determine the impact of new
European carbon dioxide (CO2) regulations.
Accenture worked closely with Companhia Brasileira de Alumínio (CBA) to develop,
produce and implement the Score System solution for its aluminum plant.
China National Offshore Oil Corporation worked with Accenture to implement an
enterprise resource planning (ERP) system for the company to support growth.
Recommendation Summary
ACN is one of the worldwide leaders in the competitive consulting and outsourcing sub-industry
segments. It boasts a strong balance sheet, is committed to long-term dividend growth and is
consistently beating earnings estimates. In a slow economic growth environment, their Mergers
and Acquisitions strategy had a negative impact on Free Cash Flow but a positive impact on
EVA. Based on these facts and the following, we recommend a long-term BUY for the
Washburn Student Investment Fund:
An investment in ACN secures a part of a global brand that is at the top of its industry. With increased demand for its product and a reformatted contract structure, ACN has solidified a
long-term revenue stream in this insecure economic environment.
The investment would bring a 1.8% dividend yield. Although low for our purposes, we feel it is acceptable for the Information Technology segment. Additionally, the investment would
also address the 10% underweight in this segment and mitigate some risk with a low beta of
0.81.
The company has been able to grow its operating margin the past 10 years and has a strong commitment to dividends. Recently the company launched a $5.5B stock repurchase and
dividend program. From that, $3.5B is reserved for future dividends alone.
Being debt free, ACN is well positioned to continue their successful M&A program to secure technological innovations and/or, talent acquisition without being overleveraged.
To further strengthen our commitment, we have consulted some leading, independent research institutions’ opinions regarding this stock. Industry leaders like CapitalIQ, Argus,
Standard and Poor’s, and Eva Dimensions all have a BUY recommendation on the stock and
-
REPORT | NYSE: ACN
Analysts:
Chris Landqvist | Justin Pippitt | Kelli Coldiron | Wei Pi
highlight the divergence in sequential ROIC-to-WACC spread and high intrinsic value.
Readers should be aware that this is not used as a determining factor to initiate a BUY of the
position but merely a corroboration of the facts already established.
Our conservative forecast assumptions and added margin of safety will allow ACN to meet future expectations. History has shown that ACN consistently beats estimates and with an
increased beta we allow for additional margins to continue this trend.
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Accenture plc ACN Sector Information Technology Stock Price $64.44 Report Date 5/6/2012
2006 2007 2008 2009 2010 2011 ASSETS 2006 2007 2008 2009 2010 2011
Total Revenue 18,228 21,453 25,314 21,577 21,551 25,507 Cash and Equivalents 3,067 3,314 3,603 4,542 4,838 5,701
Cost of Goods Sold 13,234 15,411 18,128 16,330 15,843 18,966 Short-Term Investments 353 231 20 8 3 5
Gross Profit 4,994 6,041 7,186 5,247 5,707 6,541 Total Cash & ST Invest. 3,420 3,546 3,623 4,550 4,841 5,706
SG&A Expense 3,201 3,522 4,151 3,948 4,326 4,840 Total Receivables 3,104 3,699 4,515 3,362 3,662 4,622
R&D Expense 0 0 0 0 0 0 Inventory 0 0 0 0 0 0
Dep. & Amort. 0 0 0 0 0 0 Prepaid Expenses 0 0 0 0 0 0
Other Oper. Exp. 16,435 18,934 22,279 18,684 18,626 21,960 Total Current Assets 7,191 7,971 9,159 8,991 9,564 11,471
Operating Income 1,793 2,519 3,034 2,893 2,924 3,547 Gross PPE 2,088 2,364 2,426 2,341 2,219 2,425
Interest Expense (21) (25) (23) (14) (15) (15) Accumulated Depr. (1,360) (1,556) (1,626) (1,640) (1,560) (1,640)
Other Non-Oper. Exp. (28) (22) (2) (3) (16) 17 Net PPE 728 808 800 701 660 785
EBT ex-Unusuals 1,874 2,627 3,124 2,926 2,924 3,590 Long-Term Investments 125 82 19 29 41 40
Total Unusual Exp. 50 (8) (16) (248) (10) (78) Goodwill 528 644 840 825 841 1,132
Earnings Before Tax 1,924 2,619 3,108 2,678 2,914 3,512 Total Assets 9,497 10,747 12,399 12,256 12,835 15,732
Income Tax Expense 491 896 911 740 854 959 LIABILITIES AND EQUITY
Net Income 973 1,243 1,692 1,590 1,781 2,278 Accounts Payable 856 985 1,017 717 885 949
Accrued Expenses 2,652 3,187 3,706 3,402 3,508 4,330
Diluted EPS 1.59 1.97 2.64 2.44 2.66 3.40 Short-Term Debt 2 1 5 0 0 0
Total Diluted Shares 895 863 824 787 767 742 Total Current Liab. 5,773 6,879 6,848 6,239 6,568 7,907
Dividends Per Share 0.35 0.42 0.50 0.75 0.83 1.13 Long-Term Debt 27 3 2 0 1 0
Pension Benefits 493 494 484 678 953 996
Effective Tax Rate 25.5% 34.2% 29.3% 29.3% 29.3% 27.3% Total Liabilities 6,735 7,944 9,206 8,870 9,561 11,381
Earnings Per Share 1.65 2.06 2.77 2.55 2.79 3.53 Preferred Equity 0 0 0 0 0 0
Total Common Shares 589 604 611 623 637 646 Common Stock & APIC 1,183 649 820 0 138 525
EBITDA 2,145 2,963 3,526 3,392 3,399 4,060 Retained Earnings 1,607 2,363 3,121 3,947 4,634 6,282
EBIT 1,793 2,519 3,034 2,893 2,924 3,547 Treasury Stock (870) (1,033) (1,406) (1,755) (2,524) (3,578)
EBITDAR 2,530 3,384 4,010 3,859 3,836 4,521 Total Common Equity 1,894 2,063 2,541 2,835 2,836 3,879
Free Cash Flow/Share 4.49 4.31 4.55 5.05 4.83 5.31 Total Equity 2,762 2,804 3,193 3,386 3,275 4,351
Year-end Stock Price $38.72 $36.77 $28.04 $41.84 $55.07 $64.44 Total Liab. and Equity 9,497 10,747 12,399 12,256 12,835 15,732
Historical Income Statements Historical Balance Sheets
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
2006 2007 2008 2009 2010 2011
Total Revenue Net Income
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
2006 2007 2008 2009 2010 2011
Earnings Per Share Dividends Per Share
$0 $500
$1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500
2006 2007 2008 2009 2010 2011
EBITDA EBIT
Accenture Performance Analysis. Datasource: CapitalIQ Historical Performance, Page 1 of 4 Analysts: Chris Landqvist, Justin Pippitt, Kelli Coldiron, Wei Pi
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Margins 2006 2007 2008 2009 2010 2011 Relative Valuation 2006 2007 2008 2009 2010 2011
Gross Profit Margin 27.4% 28.2% 28.4% 24.3% 26.5% 25.6% Price/Earnings 23.4 17.9 10.1 16.4 19.7 18.3
Operating Profit Margin 9.8% 11.7% 12.0% 13.4% 13.6% 13.9% Price/Book 2.4 2.1 1.4 2.1 2.7 2.6
Net Profit Margin 5.3% 5.8% 6.7% 7.4% 8.3% 8.9% Price/Free Cash Flow 8.6 8.5 6.2 8.3 11.4 12.1
Free Cash Flow Margin 14.5% 12.1% 11.0% 14.6% 14.3% 13.4% Earnings Yield 4.3% 5.6% 9.9% 6.1% 5.1% 5.5%
Dividend Yield 0.9% 1.1% 1.8% 1.8% 1.5% 1.7%
Liquidity and Debt 2006 2007 2008 2009 2010 2011 Profitability 2006 2007 2008 2009 2010 2011
Current Ratio 1.25 1.16 1.34 1.44 1.46 1.45 Net Profit Margin 5.3% 5.8% 6.7% 7.4% 8.3% 8.9%
Quick Ratio 1.25 1.16 1.34 1.44 1.46 1.45 Total Asset Turnover 1.92 2.00 2.04 1.76 1.68 1.62
Days Sales Outstanding 62.15 62.94 65.11 56.87 62.03 66.14 Equity Multiplier 3.44 3.83 3.88 3.62 3.92 3.62
Inventory Turnover N/A N/A N/A N/A N/A N/A Return on Assets 10.2% 11.6% 13.6% 13.0% 13.9% 14.5%
Long-Term Debt to Equity 1.0% 0.1% 0.1% 0.0% 0.0% 0.0% Return on Equity 35.2% 44.3% 53.0% 47.0% 54.4% 52.3%
Total Debt to Assets 0.3% 0.0% 0.1% 0.0% 0.0% 0.0% Return on Invested Capital 39.4% 45.4% 51.1% 45.6% 43.4% 44.2%
Times Interest Earned 84.80 100.61 133.65 204.88 199.25 236.47
0
0
0
1
1
1
52
54
56
58
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62
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2006 2007 2008 2009 2010 2011
Days Sales Outstanding Inventory Turnover
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2006 2007 2008 2009 2010 2011
Current Ratio Quick Ratio
0%
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15%
20%
25%
30%
2006 2007 2008 2009 2010 2011
Gross Profit Margin Operating Profit Margin
0
5
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25
2006 2007 2008 2009 2010 2011
Price/Earnings Price/Free Cash Flow
0%
2%
4%
6%
8%
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12%
2006 2007 2008 2009 2010 2011
Earnings Yield Dividend Yield
0%
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1%
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2006 2007 2008 2009 2010 2011
Total Debt to Assets Long-Term Debt to Equity
0%
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2006 2007 2008 2009 2010 2011
ROA ROE ROIC
3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 4.0
0.00
0.50
1.00
1.50
2.00
2.50
2006 2007 2008 2009 2010 2011
Total Asset Turnover Equity Multiplier
0%
2%
4%
6%
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2006 2007 2008 2009 2010 2011
Net Profit Margin Free Cash Flow Margin
Accenture Performance Analysis. Datasource: CapitalIQ Historical Performance, Page 2 of 4 Analysts: Chris Landqvist, Justin Pippitt, Kelli Coldiron, Wei Pi
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Capital, NOPAT & FCF 2006 2007 2008 2009 2010 2011
Net Oper. Working Capital 2,662 2,842 3,395 3,784 4,108 5,044
Net Fixed Assets 728 808 800 701 660 785
Total Invested Capital 3,390 3,650 4,195 4,485 4,767 5,829
Net Oper. Profit After Tax 1,336 1,657 2,145 2,045 2,068 2,579
Free Cash Flow N/A 1,398 1,600 1,755 1,785 1,517
Compared With: NOPAT Per Share 2.27 2.74 3.51 3.28 3.24 3.99
Oracle Corporation Free Cash Flow Per Share N/A 2.31 2.62 2.82 2.80 2.35
Cognizant Technology Solutions CorporationReturn on Invested Capital 39.4% 45.4% 51.1% 45.6% 43.4% 44.2%
S&P 500 Index
Cost of Capital 2011 Weight % Cost Wgt Cost Value Creation 2006 2007 2008 2009 2010 2011
Equity Capitalization 41,528 100.0% 8.9% 8.9% Economic Value-Added 1,033 1,332 1,771 1,645 1,642 2,059
Total Debt 0 0.0% 4.5% 0.0% Market Valued-Added 15,221 22,303 22,325 17,436 20,488 37,649
Preferred Stock 0 0.0% 0.0% 0.0% PV of Future FCFs 20,831 21,292 21,591 21,762 21,919 22,357
Value of All Securities 41,528 100.0% Value of Non-Oper. Assets 3,420 3,546 3,623 4,550 4,841 5,706
Effective Tax Rate 27.3% Long-Term Growth Rate: Total Intrinsic Firm Value 24,251 24,837 25,214 26,312 26,760 28,063
Risk-Free Rate 2.27% 2.0% Intrinsic Value of Equity 24,221 24,834 25,208 26,311 26,759 28,063
Beta 0.81 Alternative Beta: Per Share Intrinsic Value $27.07 $28.77 $30.59 $33.44 $34.91 $37.81
Market Risk Premium 7.0% 0.95 Year-End Stock Price $38.72 $36.77 $28.04 $41.84 $55.07 $64.44
CAPM Cost of Equity 8.9% Over (Under) Valuation/Sh $11.65 $8.00 ($2.55) $8.40 $20.16 $26.63
Weighted Average Cost of Capital: 8.9% % Over (Under) Valued 30.1% 21.7% -9.1% 20.1% 36.6% 41.3%
30.5% 36.5% 42.2% 36.7% 34.4% 35.3%
$0
$1,000
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$5,000
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$7,000
2006 2007 2008 2009 2010 2011
Net Fixed Assets Total Invested Capital
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2007 2008 2009 2010 2011
Net Oper. Profit After Tax Free Cash Flow
$0
$10
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$40
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$70
2006 2007 2008 2009 2010 2011
Year-End Stock Price Per Share Intrinsic Value
0
5,000
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15,000
20,000
25,000
30,000
35,000
40,000
0
500
1,000
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2006 2007 2008 2009 2010 2011
Economic Value-Added Market Valued-Added
-20%
-10%
0%
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30%
40%
50%
($5)
$0
$5
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2006 2007 2008 2009 2010 2011
Over (Under) Valuation/Sh % Over (Under) Valued
-40%
-30%
-20%
-10%
0%
10%
20%
30% ACN ORCL CTSH
-20%
-10%
0%
10%
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30% ACN ^SPX
Accenture Performance Analysis. Datasource: CapitalIQ Historical Performance, Page 3 of 4 Analysts: Chris Landqvist, Justin Pippitt, Kelli Coldiron, Wei Pi
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Revenues, Profits and Dividends 20.0% Liquidity and Debt 10.0%
Total Revenue 0 Current Ratio 1
EBITDA 1 Quick Ratio 1
EPS 1 Days Sales Outstanding -1
DPS 1 Inventory Turnover 1
Gross, Operating and Net Margins 15.0% Total Debt/Assets 1
Gross Profit Margin 0 Long-Term Debt/Equity 1
Operating Profit Margin 1 NOPAT, Total Invested Capital, FCF 15.0%
Net Profit Margin 1 NOPAT 1
Free Cash Flow Margin 0 Total Invested Capital 1
Relative Valuation 15.0% Free Cash Flow 0
Price/Earnings 0 Value Creation 15.0%
Price/Free Cash Flow 0 Economic Value-Added 1
Earnings Yield 0 Market Value-Added 1
Dividend Yield 1 Intrinsic Value 1
Profitability 10.0%
ROA 1 Score (max = 100%) 67.9%
ROE 1
ROIC 1
Weights 100.0%
Historical Performance Diffusion Index
Accenture Performance Analysis. Datasource: CapitalIQ Historical Performance, Page 4 of 4 Analysts: Chris Landqvist, Justin Pippitt, Kelli Coldiron, Wei Pi
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ACN Accenture plc Sector Information Technology
2006 2007 2008 2009 2010 2011 Average Manual 2012E 2013E 2014E 2015E 2016E
Total Revenue 18,228 21,453 25,314 21,577 21,551 25,507 7.0% N/A 29,078 32,567 35,824 38,690 39,464
Cost of Goods Sold 13,234 15,411 18,128 16,330 15,843 18,966
Gross Profit 4,994 6,041 7,186 5,247 5,707 6,541 26.6% N/A 7,734 8,662 9,529 10,291 10,497
SG&A Expense 3,201 3,522 4,151 3,948 4,326 4,840
R&D Expense 0 0 0 0 0 0
Dep. & Amort. 0 0 0 0 0 0
Other Oper. Exp. 16,435 18,934 22,279 18,684 18,626 21,960
Operating Income 1,793 2,519 3,034 2,893 2,924 3,547 12.9% N/A 3,758 4,209 4,629 5,000 5,100
Net Interest Expense 108 130 92 36 15 26
Other Non-Oper. Exp. (28) (22) (2) (3) (16) 17
EBT ex-Unusuals 1,874 2,627 3,124 2,926 2,924 3,590
Total Unusual Exp. 50 (8) (16) (248) (10) (78)
Earnings Before Tax 1,924 2,619 3,108 2,678 2,914 3,512
Income Tax Expense 491 896 911 740 854 959
Net Income 973 1,243 1,692 1,590 1,781 2,278 7.4% N/A 2,154 2,413 2,654 2,866 2,923
Basic EPS 1.65 2.06 2.77 2.55 2.79 3.53 3.28 3.60 3.89 4.13 4.13
Total Common Shares 589 604 611 623 637 646 1.8% N/A 658 670 682 695 708
Dividends Per Share 0.35 0.42 0.50 0.75 0.83 1.13 26.3% N/A 1.35 1.59 1.85 2.11 2.18
2007 2008 2009 2010 2011 Average Manual 2012E 2013E 2014E 2015E 2016E
1. Revenue Growth 17.7% 18.0% -14.8% -0.1% 18.4% 7.0% 14.0% 12.0% 10.0% 8.0% 2.0%
2. Gross Margin 28.2% 28.4% 24.3% 26.5% 25.6% 26.6%
3. Operating Margin 11.7% 12.0% 13.4% 13.6% 13.9% 12.9%
4. Net Margin 5.8% 6.7% 7.4% 8.3% 8.9% 7.4%
5. Common Shares Growth 2.6% 1.1% 2.0% 2.3% 1.3% 1.8%
6. Dividend Growth 20.0% 19.0% 50.0% 10.0% 36.4% 26.3% 20.0% 18.0% 16.0% 14.0% 3.5%
4. Net Income 5. Total Common Shares 6. Dividends Per Share
Historical Growth and Margins Forecast Defaults to Historical Avg. User Can Enter 1 Manual Avg. or Year-by-Year Values
1. Total Revenue 2. Gross Profit 3. Operating Income
$0
$10,000
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Accenture Performance Analysis. Datasource: CapitalIQ Income Statement Forecast, Page 1 of 1 Analysts: Chris Landqvist, Justin Pippitt, Kelli Coldiron, Wei Pi
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ACN Accenture plc Sector Information Technology
ASSETS 2006 2007 2008 2009 2010 2011 Average Manual 2012E 2013E 2014E 2015E 2016E
Cash and Equivalents 3,067 3,314 3,603 4,542 4,838 5,701 19.1% N/A 5,556 6,223 6,845 7,392 7,540
Short-Term Investments 353 231 20 8 3 5
Total Cash & ST Invest. 3,420 3,546 3,623 4,550 4,841 5,706
Total Receivables 3,104 3,699 4,515 3,362 3,662 4,622 17.2% N/A 4,988 5,587 6,146 6,637 6,770
Inventory 0 0 0 0 0 0 0.0% N/A 0 0 0 0 0
Prepaid Expenses 0 0 0 0 0 0
Total Current Assets 7,191 7,971 9,159 8,991 9,564 11,471 40.9% 35.0% 10,177 11,399 12,538 13,542 13,812
Gross PPE 2,088 2,364 2,426 2,341 2,219 2,425
Accumulated Depr. (1,360) (1,556) (1,626) (1,640) (1,560) (1,640)
Net PPE 728 808 800 701 660 785 3.3% N/A 949 1,063 1,169 1,263 1,288
Long-Term Investments 125 82 19 29 41 40
Goodwill 528 644 840 825 841 1,132
Total Assets 9,497 10,747 12,399 12,256 12,835 15,732 55.4% N/A 16,116 18,050 19,854 21,443 21,872
LIABILITIES AND EQUITY 3,508 4,172 4,723 4,120 4,393 5,279
Accounts Payable 856 985 1,017 717 885 949 Note: Forecasting Payables + Accruals together in row 19 below
Accrued Expenses 2,652 3,187 3,706 3,402 3,508 4,330 19.7% N/A 5,716 6,402 7,042 7,605 7,757
Short-Term Debt 2 1 5 0 0 0
Total Current Liabilities 5,773 6,879 6,848 6,239 6,568 7,907 29.9% N/A 8,695 9,738 10,712 11,569 11,800
Long-Term Debt 27 3 2 0 1 0 0.0% 0.0% 0 0 0 0 0
Pension Benefits 493 494 484 678 953 996 29 3 7 0 1 0
Total Liabilities 6,735 7,944 9,206 8,870 9,561 11,381 Note: Forecasting ST Debt + LT Debt together in row 22 above
Preferred Equity 0 0 0 0 0 0
Common Stock & APIC 1,183 649 820 0 138 525
Retained Earnings 1,607 2,363 3,121 3,947 4,634 6,282
Treasury Stock (870) (1,033) (1,406) (1,755) (2,524) (3,578)
Total Common Equity 1,894 2,063 2,541 2,835 2,836 3,879
Total Equity 2,762 2,804 3,193 3,386 3,275 4,351 14.7% N/A 4,282 4,796 5,275 5,697 5,811
Total Liab. and Equity 9,497 10,747 12,399 12,256 12,835 15,732
2007 2008 2009 2010 2011 Average Manual 2012E 2013E 2014E 2015E 2016E
1. Cash and Equivalents 15.4% 14.2% 21.0% 22.5% 22.4% 19.1%
2. Total Receivables 17.2% 17.8% 15.6% 17.0% 18.1% 17.2%
3. Inventory 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Percent of Sales Forecast Defaults to Historical Avg. User Can Enter 1 Manual Avg. or Year-by-Year Values
2. Total Receivables1. Cash and Equivalents 3. Inventory
$0
$2,000
$4,000
$6,000
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Accenture Performance Analysis. Datasource: CapitalIQ Balance Sheet Forecast, Page 1 of 2 Analysts: Chris Landqvist, Justin Pippitt, Kelli Coldiron, Wei Pi
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2007 2008 2009 2010 2011 Average Manual 2012E 2013E 2014E 2015E 2016E
4. Total Current Assets 37.2% 36.2% 41.7% 44.4% 45.0% 40.9% 35.0%
5. Net PPE 3.8% 3.2% 3.2% 3.1% 3.1% 3.3%
6. Total Assets 50.1% 49.0% 56.8% 59.6% 61.7% 55.4%
7. Payables and Accruals 19.4% 18.7% 19.1% 20.4% 20.7% 19.7%
8. Total Current Liabilities 32.1% 27.1% 28.9% 30.5% 31.0% 29.9%
9. Total Debt 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
10. Total Equity 13.1% 12.6% 15.7% 15.2% 17.1% 14.7%
7. Payables and Accruals 8. Total Current Liabilities 9. Total Debt
10. Total Equity
4. Total Current Assets 5. Net PPE 6. Total Assets
Percent of Sales Forecast Defaults to Historical Avg. User Can Enter 1 Manual Avg. or Year-by-Year Values
$0 $2,000 $4,000 $6,000 $8,000
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Accenture Performance Analysis. Datasource: CapitalIQ Balance Sheet Forecast, Page 2 of 2 Analysts: Chris Landqvist, Justin Pippitt, Kelli Coldiron, Wei Pi
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ACN Accenture plc Sector Information Technology Report Date 5/6/2012 2006
2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E
Total Revenue 18,228 21,453 25,314 21,577 21,551 25,507 29,078 32,567 35,824 38,690 39,464
Gross Profit 4,994 6,041 7,186 5,247 5,707 6,541 7,734 8,662 9,529 10,291 10,497
Operating Income 1,793 2,519 3,034 2,893 2,924 3,547 3,758 4,209 4,629 5,000 5,100
Net Income 973 1,243 1,692 1,590 1,781 2,278 2,154 2,413 2,654 2,866 2,923
Retained Earnings 1,607 2,363 3,121 3,947 4,634 6,282 7,548 8,893 10,287 11,689 13,070
Total Common Shares 589 604 611 623 637 646 658 670 682 695 708
Total Diluted Shares 895 863 824 787 767 742 756 770 784 799 813
Earnings Per Share $1.65 $2.06 $2.77 $2.55 $2.79 $3.53 $3.28 $3.60 $3.89 $4.13 $4.13
Dividends Per Share $0.35 $0.42 $0.50 $0.75 $0.83 $1.13 $1.35 $1.59 $1.85 $2.11 $2.18
2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E
Cash and Equivalents 3,067 3,314 3,603 4,542 4,838 5,701 5,556 6,223 6,845 7,392 7,540
Total Receivables 3,104 3,699 4,515 3,362 3,662 4,622 4,988 5,587 6,146 6,637 6,770
Inventory 0 0 0 0 0 0 0 0 0 0 0
Total Current Assets 7,191 7,971 9,159 8,991 9,564 11,471 10,177 11,399 12,538 13,542 13,812
Net PPE 728 808 800 701 660 785 949 1,063 1,169 1,263 1,288
Total Assets 9,497 10,747 12,399 12,256 12,835 15,732 16,116 18,050 19,854 21,443 21,872
Payables and Accruals 3,508 4,172 4,723 4,120 4,393 5,279 5,716 6,402 7,042 7,605 7,757
Total Current Liabilities 5,773 6,879 6,848 6,239 6,568 7,907 8,695 9,738 10,712 11,569 11,800
Total Debt 29 3 7 0 1 0 0 0 0 0 0
Total Equity 2,762 2,804 3,193 3,386 3,275 4,351 4,282 4,796 5,275 5,697 5,811
Historical Income Statement Highlights Forecasted Income Statement Highlights
Historical Balance Sheet Highlights Forecasted Balance Sheet Highlights
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Accenture Performance Analysis. Datasource: CapitalIQ Financial Analysis & Valuation, Page 1 of 5 Analysts: Chris Landqvist, Justin Pippitt, Kelli Coldiron, Wei Pi
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Margins 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E
Gross Profit Margin 27.4% 28.2% 28.4% 24.3% 26.5% 25.6% 26.6% 26.6% 26.6% 26.6% 26.6%
Operating Profit Margin 9.8% 11.7% 12.0% 13.4% 13.6% 13.9% 12.9% 12.9% 12.9% 12.9% 12.9%
Net Profit Margin 5.3% 5.8% 6.7% 7.4% 8.3% 8.9% 7.4% 7.4% 7.4% 7.4% 7.4%
Free Cash Flow Margin 14.5% 6.5% 6.3% 8.1% 8.3% 5.9% 9.6% 7.3% 7.6% 7.9% 9.0%
Liquidity and Debt 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E
Days Sales Outstanding 62.15 62.94 65.11 56.87 62.03 66.14 62.62 62.62 62.62 62.62 62.62
Inventory Turnover N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Total Debt to Equity 1.1% 0.1% 0.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Total Debt to Assets 0.3% 0.0% 0.1% 0.0% 0.0% N/A N/A N/A N/A N/A N/A
Profitability 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E
Total Asset Turnover 1.92 2.00 2.04 1.76 1.68 1.62 1.80 1.80 1.80 1.80 1.80
Equity Multiplier 3.44 3.83 3.88 3.62 3.92 3.62 3.76 3.76 3.76 3.76 3.76
Return on Assets 10.2% 11.6% 13.6% 13.0% 13.9% 14.5% 13.4% 13.4% 13.4% 13.4% 13.4%
Return on Equity 35.2% 44.3% 53.0% 47.0% 54.4% 52.3% 50.3% 50.3% 50.3% 50.3% 50.3%
Return on Capital 39.4% 45.4% 51.1% 45.6% 43.4% 44.2% 47.3% 47.3% 47.3% 47.3% 47.3%
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Accenture Performance Analysis. Datasource: CapitalIQ Financial Analysis & Valuation, Page 2 of 5 Analysts: Chris Landqvist, Justin Pippitt, Kelli Coldiron, Wei Pi
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Capital, NOPAT & FCF 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E
NOWC 2,662 2,842 3,395 3,784 4,108 5,044 4,829 5,408 5,949 6,425 6,553
Net Fixed Assets 728 808 800 701 660 785 949 1,063 1,169 1,263 1,288
Total Invested Capital 3,390 3,650 4,195 4,485 4,767 5,829 5,777 6,471 7,118 7,687 7,841
Effective Tax Rate 25.5% 34.2% 29.3% 29.3% 29.3% 27.3%
NOPAT 1,336 1,657 2,145 2,045 2,068 2,579 2,732 3,060 3,366 3,635 3,708
Free Cash Flow N/A 1,398 1,600 1,755 1,785 1,517 2,783 2,366 2,719 3,065 3,554
NOPAT Per Share 2.27 2.74 3.51 3.28 3.24 3.99 4.15 4.57 4.93 5.23 5.24
FCF/Share N/A 2.31 2.62 2.82 2.80 2.35 4.23 3.53 3.99 4.41 5.02
Return on Capital 39.4% 45.4% 51.1% 45.6% 43.4% 44.2% 47.3% 47.3% 47.3% 47.3% 47.3%
Intrinsic Value of FCFs Valuation Model
Value Creation 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E
Economic Value-Added 1,033 1,332 1,771 1,645 1,642 2,059 2,216 2,482 2,731 2,949 3,008
Market Valued-Added 20,048 19,410 13,938 22,680 31,814 37,254 47,840 49,781 51,519 53,036 54,097
PV of Future FCFs 35,800 37,597 39,351 41,106 42,989 45,307 46,566 48,354 49,950 51,341 52,368
Value of Non-Oper. Assets 3,067 3,314 3,603 4,542 4,838 5,701 5,556 6,223 6,845 7,392 7,540
Total Intrinsic Firm Value 38,867 40,911 42,954 45,648 47,827 51,008 52,122 54,577 56,795 58,733 59,908
Intrinsic Value of Equity 38,838 40,907 42,947 45,648 47,826 51,008 52,122 54,577 56,795 58,733 59,908
Per Share Intrinsic Value $65.93 $67.71 $70.30 $73.27 $75.06 $79.00 $79.26 $81.49 $83.26 $84.54 $84.67
Year-End Stock Price $38.72 $36.77 $28.04 $41.84 $55.07 $64.44
Over (Under) Valuation/Sh ($27.21) ($30.94) ($42.26) ($31.43) ($19.99) ($14.56)
% Over (Under) Valued -70.3% -84.2% -150.7% -75.1% -36.3% -22.6%
Cost of Capital 2011 Weight % Cost Wgt Cost
Equity Capitalization 41,528 100.0% 8.9% 8.9%
Total Debt 0 0.0% 4.5% 0.0%
Preferred Stock 0 0.0% 0.0% 0.0%
Value of All Securities 41,528 100.0%
Effective Tax Rate 27.3% Long-Term Growth Rate:
Risk-Free Rate 2.27% 2.0%
5-Yr Beta 0.81 Alternative Beta:
Market Risk Premium 7.0% 0.95
CAPM Cost of Equity 8.9%
8.9%
(Tax rate from last historical year used in forecasts)
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Accenture Performance Analysis. Datasource: CapitalIQ Financial Analysis & Valuation, Page 3 of 5 Analysts: Chris Landqvist, Justin Pippitt, Kelli Coldiron, Wei Pi
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Relative Valuation 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E
Stock Price/Intr. Value $38.72 $36.77 $28.04 $41.84 $55.07 $64.44 $79.26 $81.49 $83.26 $84.54 $84.67
Price to Earnings 23.4 17.9 10.1 16.4 19.7 18.3 24.2 22.6 21.4 20.5 20.5
Price to Free Cash Flow N/A 15.9 10.7 14.8 19.7 27.4 18.7 23.1 20.9 19.2 16.9
Price to Sales 1.3 1.0 0.7 1.2 1.6 1.6 1.8 1.7 1.6 1.5 1.5
Price to Book 2.4 2.1 1.4 2.1 2.7 2.6 3.2 3.0 2.9 2.7 2.7
Earnings Yield 4.3% 5.6% 9.9% 6.1% 5.1% 5.5% 4.1% 4.4% 4.7% 4.9% 4.9%
Dividend Yield 0.9% 1.1% 1.8% 1.8% 1.5% 1.7% 1.7% 2.0% 2.2% 2.5% 2.6%
Free Cash Flow Yield N/A 6.3% 9.3% 6.7% 5.1% 3.6% 5.3% 4.3% 4.8% 5.2% 5.9%
Relative Valuation Pricing Model Adjust 2012 Intrinsic Dividend Discount Valuation Model
2012E Ratio Ratio Ratio Metric Value ACN Accenture plc
Price to Earnings 24.2 21.0 $3.28 $68.79 20.0% 18.0% 16.0% 14.0% 3.5%
Price to Free Cash Flow 18.7 16.5 $4.23 $69.84 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E
Price to Sales 1.8 1.7 $44.22 $75.17 $0.35 $0.42 $0.50 $0.75 $0.83 $1.13 $1.35 $1.59 $1.85 $2.11 $2.18
Price to Book 3.2 2.5 $24.51 $61.27
1-Yr Div Growth 36.4% PV Dividends 1-4 $5.51 Dividend Yeld 1.7%
2012E 3-Yr Div Growth 31.0% PV Perpetual Div. $28.57
Current Price $64.44 5-Yr Div Growth 26.3% Intrinsic Value $34.08 If Purchased For: $64.44
PV of Free Cash Flows $79.26 Risk-Free Rate 2.27% Current Price $64.44 Expected Return = -7.9%
Dividend Discount Model $34.08 5-Yr Beta 0.81 ($64.44) $1.35 $1.59 $1.85 $42.32 $40.21
Price to Earnings $68.79 Market Premium 7.0% Analyst Notes:
Price to Free Cash Flow $69.84 Required Return 8.9% Based on a current dividend of $1.13, expected growth as shown above and an equity required
Price to Sales $75.17 Alternative Beta 0.95 return of 8.9%, ACN is worth $34.08 per share, vs. a current price of $64.44.
Price to Book $61.27
Compared With: Compared With:
Oracle Corporation S&P 500 Index
Cognizant Technology Solutions Corporation
Expected Dividend Growth Rates
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May 6, 2012
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Accenture Performance Analysis. Datasource: CapitalIQ Financial Analysis & Valuation, Page 4 of 5 Analysts: Chris Landqvist, Justin Pippitt, Kelli Coldiron, Wei Pi
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Piotroski Financial Fitness Scorecard (10-point scale) 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E
Positive Net Income 1 1 1 1 1 1 1 1 1 1
Positive Free Cash Flow 1 1 1 1 1 1 1 1 1 1
Growing ROA (% change NI > % change TA) 1 1 0 1 1 0 0 0 0 0
Earnings Quality (Operating Income > Net Income) 1 1 1 1 1 1 1 1 1 1
Total Assets Growing Faster Than Total Liabilities 0 1 1 0 1 0 0 1 0 0
Increasing Liquidity (Current Ratio) 0 1 1 1 1 0 0 0 0 0
% Change Shares Outstanding (Diluted) < +2.0% 0 0 0 0 0 0 0 0 0 0
Expanding Gross Margin 1 1 0 1 0 1 0 0 0 0
Asset Turnover (% change sales > % change assets) 1 1 0 0 0 1 0 0 1 0
Total Liabilities to Operating Cash Flow (EBIT) < 4.0 1 1 1 1 1 1 1 1 1 1
Piotroski Score 7 9 6 7 7 6 4 5 5 4
Altman Probability of Bankruptcy Z-Score Weight 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E
(Current Assets-Current Liabilities)/Total Assets 1.200 0.1219 0.2237 0.2694 0.2801 0.2719 0.1104 0.1104 0.1104 0.1104 0.1104
Retained Earnings/Total Assets 1.400 0.2094 0.2668 0.3565 0.4305 0.4124 0.5457 0.5854 0.6271 0.6716 0.7482
Earnings Before Interest & Tax/Total Assets 3.300 0.7735 0.8077 0.7790 0.7519 0.7440 0.7695 0.7695 0.7695 0.7695 0.7695
Market Value Equity/Total Liabilities 0.600 1.6779 1.1165 1.7633 2.2021 2.1934 2.6427 2.4707 2.3374 2.2381 2.2381
Sales/Total Assets 0.999 1.9941 2.0396 1.7588 1.6773 1.6198 1.8025 1.8025 1.8025 1.8025 1.8025
Altman Score 4.78 4.45 4.93 5.34 5.24 5.87 5.74 5.65 5.59 5.67
The interpretation for the Altman Score is: Safe Zone = Z > 2.9, Grey Zone = 1.23 < Z < 2.9, Distress Zone = Z < 1.23
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Accenture Performance Analysis. Datasource: CapitalIQ Financial Analysis & Valuation, Page 5 of 5 Analysts: Chris Landqvist, Justin Pippitt, Kelli Coldiron, Wei Pi