Accentures Work in Saying Whom to Fire Buoys Shares (Update3)
By Matthew R. Miller
Feb. 22 (Bloomberg) — T. Rowe Price Associates Inc. is
betting more than $800 million that Accenture Ltd., the worlds
second-largest management-consulting company, will thrive as the
global economy slows.
The fourth-largest investor in Hamilton, Bermuda-based
Accenture, T. Rowe Price added 1.8 million shares last quarter
while the stock price slid 10 percent. Investors are concerned
that Fortune 100 clients will cut spending and diminish
Accentures profit, forecast by Chief Executive Officer William
Green to be as much as $2.41 a share for fiscal 2008.
Green is winning business from Washington Mutual Inc. and
ING Groep NV even as the financial-services industry contracts.
In December, he raised the profit forecast by 15 cents a share.
Eaton Vance Management, overseeing $153 billion, purchased 3.3
million shares in the fourth quarter. The stock, which closed at
$33.83 in New York trading yesterday, may reach the mid-to-upper
$40s in 24 months, said Hester Capital Management portfolio
manager Eric Boyce in Austin, Texas.
“Accenture has a broad and durable revenue mix, said T.
Rowe Price analyst Daniel Flax. “We believe there is room for
substantial upside over the next couple of years. The
Baltimore-based firm owns 24.2 million shares worth $817 million
among $400 billion managed, according to Securities and Exchange
Commission filings.
In the last economic slowdown in 2002, Accenture dropped 59
percent over seven months as consulting orders were postponed or
canceled. The following year, the stock gained 46 percent and
continued climbing to a record $44.03 on June 26, 2007.
Accenture has diversified and is less vulnerable than it was
earlier in the decade, says Green, 54.
`Large and Long-Term
“We dont have a lot of projects that people can call
discretionary, Green said in a telephone interview. “The vast
majority of our projects are large and long-term.
Accentures advisory work includes helping corporations
decide whether to outsource some internal operations. The company
claims 94 of the Fortune 100 as clients and operates offices in
49 countries. Its top 75 customers accounted for about 40 percent
of sales last year.
Green expanded Accentures business in outsourcing, managing
computers and payroll processing for customers that include
Microsoft Corp., the worlds biggest software maker, and BHP
Billiton Plc, the largest mining company.
Outsourcing contracts comprise 40 percent of revenue, up
from 17 percent in 2001. They run longer and are less likely to
be cut by cash-strapped clients than consulting engagements.
Global Revenue
Consulting makes up the rest of sales, allowing Accenture to
post higher return on equity and profit margins than competitors
Electronic Data Systems Corp., the worlds second-biggest
computer-services provider, or Computer Sciences Corp., which
manages networks for NASA and the U.S. Navy.
Accenture has also increased global revenue to almost two-
thirds of sales from less than half. About 75,000 non-U.S.
employees, mostly in low-wage countries such as India and the
Philippines, make up 43 percent of the companys 175,000 workers.
Accenture gained 20 cents to $34.03 at 4:04 p.m. in New York
Stock Exchange composite trading.
In a cooling economy, clients are turning to Accenture to
find ways to save money, said Andy Miedler, an analyst with
Edward Jones %26amp; Co. in St. Louis.
“Accenture reaches farther and deeper into the senior
management than its competition, said Miedler, who recommends
buying the shares.
Spending Slows
Miedlers outlook is shared by 16 other analysts surveyed by
Bloomberg. Six recommend holding; none say sell. On average, they
predict the price will reach $45.10 in the next 12 months.
Since Sept. 30, Accenture has fallen 16 percent, compared
with a drop of 16 percent for Plano, Texas-based Electronic Data
Systems and 20 percent for Computer Sciences, in El Segundo,
California.
At Accenture shares current level, investors expect revenue
to fall 15 percent short of analysts average projection of $22.6
billion during this fiscal year, estimates Tim Fox, an analyst
with Deutsche Bank Securities Inc. in Boston. Sales last year
were $21.5 billion. Profit was $1.24 billion, or $1.97 a share.
Business and technology consulting is forecast to grow 6.6
percent this year to $64 billion, slower than 2007s 9.1 percent
rise, according to Stamford, Connecticut-based Gartner Inc.
Technology outsourcing may rise 8.1 percent to $441 billion.
Geek Squad
Best Buy Co., the largest U.S. consumer-electronics chain,
spends more than $100 million a year with Accenture, said Robert
Willett, chief information officer and international CEO of the
Richfield, Minnesota-based retailer. Thats equivalent to 57
percent of the companys common-stock dividend payments in the
year ended March 2007.
Accentures assignment ranges from human resources
outsourcing to advising home-theater designers and Geek Squad
computer fix-it teams on ways to build sales.
“They are helping us shape our vision, Willett said in an
interview. “Were moving from being a pure retailer to being a
retailer that also provides services.
David Scott, a portfolio manager at Chase Investment Counsel
Corp. in Charlottesville, Virginia, sold all 5 million Accenture
shares he acquired last year because sales growth “wasnt as
strong as we expected it to be. Financial services, accounting
for 20 percent of revenue, “is weakening.
The worlds biggest banks have announced more than $150
billion in asset writedowns and credit losses since the start of
2007, including $24.5 billion by Merrill Lynch %26amp; Co. and $22.1
billion by Citigroup Inc.
Washington Mutual, the biggest U.S. savings and loan by
assets, wrote down the value of its home-mortgage unit in
January, leading to its first quarterly loss since 1997.
Accenture trains commercial-banking sales-and-service
employees, said Stephen Rotella, the Seattle-based banks chief
operating officer.
While the program is “mission critical, Rotella said in
an interview that the bank has not yet signed up Accenture for
its credit-card and home-loan units. With the economy weakening,
Washington Mutual will “move forward judiciously, he said.
To contact the reporter on this story:
Matthew R. Miller in Atlanta at
