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Accenture: Tough Times Make For Rich Consultants

Posted: Jul 10, 2008 08:16 AM by Gregory S. Davis

Tickers in this Article: ACN, IBM, EDS

Escape from Alcatraz is a grueling triathlon sponsored by the $24 billion a year global management consulting firm Accenture (NYSE:ACN). The annual race is composed of a 1.5 mile swim, an 18 mile bike and an eight mile run complete with beach running and a daunting 400 step climb in one segment. The triathletes who strive to perfect their mastery of all three disciplines reflect the flexibility and determination of the company that sponsors the race. Accenture has been rewarded for the strength it has displayed in the face of a market that has has failed to keep pace.

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Why Consulting?
Accenture is up 12% since the beginning of the year and the stock has more than doubled since 2003. Difficult economic times definitely drive cutbacks and layoffs investors see in the news, but it also creates opportunities for consulting firms who can help companies minimize expenses and grow into new markets. Areas of expected growth include: enterprise resources planning implementations, talent management, market entry strategies and workplace collaboration technology. (To learn about this popular profession, read Consulting - Everybody's Doing It, Should You? )

Record Revenue in Q3
Accenture reported its highest ever quarterly revenue at the end of its third quarter in June. The company produced net revenue of $6.1 billion for the third quarter led by consulting revenue of $3.7 billion followed by outsourcing revenue of $2.4 billion. Despite the slowdown in the U.S. economy Accenture managed to grow revenue 17% in Americas including the U.S., Canada and Brazil. Notably, Accenture's Financial Services business grew 8% this past quarter driven by clients' additional attention to risk management tactics.

Valuation Time
Accenture has a low PEG ratio of 1.10 and a complimentary low price-to-sales ratio of 1.00. It also has a beta of 0.83 suggesting that its movements are less volatile than the up and down gyrations we've witnesses over the past six months in the stock market. The company also sports a healthy operating margin of 11.90%.

Competitor IBM (NYSE:IBM) also has a relatively low PEG of 1.25 and an operating margin of 15.41%. The slightly smaller Electronic Data Systems Corporation (NYSE:EDS) has a PEG of 1.28 and an operating margin just over 5%. (To learn more on this metric, be sure to read our related article Analyzing Operating Margins.)

Conclusion
Investors looking for a strong hold during tough market cycles must remember opportunities exist for global consulting firms like Accenture that can develop plans for large corporations to enter new markets and eliminate cost inefficiencies. The triathlon is about striving for performance under the pressures of competition. Investors must have the same multidiscipline mindset in place when choosing their portfolio of stocks that can smoothly ride the ebbs and flows of the market.

By Gregory S. Davis

Gregory S. Davis is the owner of G. Davis Capital, a Registered Investment Advisor with the state of North Carolina dedicated to providing independent investment research and education. His core methodology for choosing investments includes going against emotion eliciting headlines while focusing on asset diversification. G. Davis Capital also publishes the ETF education website, ETFReady.com . Gregory is a graduate of the Wharton School of Business and he has received an MBA from Bowie State University.

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