By investor Stanley Nabi's calculations, Accenture Ltd will outperform peers for at least five more months — or even longer.
Accenture, the world's second-largest technology consulting company, is fending off the worldwide economic slump, capturing new clients and helping existing ones make the most of shrinking budgets. Chief Executive Officer William Green, 55, has raised his earnings forecast three times in the past year.
“You consult as much when things are bad as when things are good,” said Nabi, vice chairman of Silvercrest Asset Management Group. The New York-based firm, with $10 billion in assets, may add to a 506,000-share stake in Accenture built through June 30. “At this price, it would be a defensive stock on the way down.”
The Hamilton, Bermuda-based company, down 18 percent this year, can still boast the third-best return among companies in the Morgan Stanley Technology Index. The shares fell less than half as much as competitors including Cognizant Technology Solutions Corp, which depends more on short-term software deals. Accenture will surpass rivals at least until the recession hits bottom in the second quarter of 2009, Nabi said.
Accenture rose $1.28, or 4.6 per cent, to $29.37 on Thursday in New York Stock Exchange composite trading. Analysts project the stock will climb 43 per cent to $42 in a year, according to the average of 10 estimates compiled by Bloomberg.
In the slow economy, Green is pushing Accenture's strength in consulting to help companies run more efficiently. That part of the business accounts for about 60 per cent of revenue. The rest, built up over the past five years, involves taking over such tasks as managing computers and payrolls for customers including software maker Microsoft Corp and BHP Billiton Plc, the world's largest mining company.
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“They always say, ‘Never waste a good crisis,’” Green, an avid snowboarder and fisherman, said last week at a conference in New York sponsored by Goldman, Sachs & Co. “I think people are going to use this as an opportunity to strategically rationalise their business.”
Accenture posted a profit in every quarter of the fiscal year ended August 31, beating estimates each time. New bookings rose 57 per cent to $7.67 billion, a record for the company. Sales this year will rise 9 per cent to 12 per cent, the company said in September. Green declined a request for comment.
“They seem to be relatively scrappy in terms of being able to win some deals,” said Jason Wulff, an analyst at Sentinel Asset Management in Montpelier, Vermont, which oversees $15 billion and owned 394,200 shares as of September 30.
More than 40 per cent of companies have trimmed technology budgets this year to cope with the slowdown, according to Forrester Research Inc in Cambridge, Massachusetts. Accenture raised its earnings forecast in December, March and June, citing higher demand for cost-cutting services.
Accenture's outperformance may run its course once a recovery starts, said Karl Keirstead, an analyst at Kaufman Brothers LP who advises buying. The shares will trail outsourcers such as Teaneck, New Jersey-based Cognizant, which has lost 47 per cent this year, Bangalore, India-based Wipro Ltd., off 53 per cent, and Tata Consultancy Services Ltd. of Mumbai, down 50 per cent, he said.
Some customers may hire cheaper Indian suppliers when they eventually replenish technology budgets and reinvest in software, said Dhruv Chopra of Morgan Stanley in New York. He is ranked second among computer-services analysts tracked by Bloomberg.
“For the ones that also need strategic direction and domain expertise, I think some will turn to Accenture,” said Chopra, who rates Accenture “equal-weight.”
Nabi projects a “moderate” rise in Accenture stock when the economy recovers. “It's not going to have an upturn in a V formation.” Indian vendors may do no better, he said.
By diversifying its customer base, Green is limiting risk as the economy sinks. Sales to the resources sector, including oil and gas companies, grew by 25 per cent last quarter as the companies increased spending on consulting with Accenture.
“Their defensive businesses, government and energy, are stabilising,” said James Friedman, an analyst with Susquehanna Financial Group in New York who has a “neutral” rating on the shares. “Your goal isn't to thrive in a recession. Your goal is to maintain.”
The US Air Force, already a client, awarded Accenture a $22.2 million contract in October to design simulators for a Massachusetts base. It rejected offers as low as $900,000 because Accenture had the best proposal, the base's chief contracting officer, John Nunziato, said in an interview, declining to elaborate.
Accenture receives about 21 per cent of its revenue from financial-services clients, compared with 47 per cent at Cognizant and 44 per cent at Tata, India's largest computer- services provider.
The financial industry, roiled by the collapse of Lehman Brothers Holdings Inc and the sales of Bear Stearns Cos. and Merrill Lynch & Co, may provide new contracts as firms consolidate, said Wulff.
Integrating technology systems is a “huge and daunting task,” Wulff said. “They're going to want to rely on a pretty trusted adviser as opposed to going with the lowest-cost option. It's a huge opportunity.''