Tough Q2-2009 Bar for Accenture, but Likely to Match Expectations

Accenture is reporting its Q2-2009 (for the three months from November 2008 to February 2009) results on Thursday March 26, 2009, and the consensus Wall Street analyst estimate for earnings is 62 cents per share compared to year-ago 64 cents per share in Q2-2008, 3% lower. This is the average estimate from 18 analysts who follow the stock and have varying estimates between 58 cents and 67 cents per share.

In terms of revenues, the consensus Wall Street analyst estimate is $5.54 billion compared to year-ago $5.61 B in Q2-2008, 1.2% lower. This is the average estimate from 18 analysts who follow the stock and have varying estimates between $5.40 B and $5.71 B. For the fiscal year 2009, analysts expect Accenture to earn $2.79 per share compared to $2.65 earned in fiscal year 2008, a 5.2% increase.

In terms of the 19 Wall Street analysts rating the company, 5 rate it a Strong Buy, 8 rate it a Buy and 6 rate it a Hold. For example, on October 15, 2008, Argus Research raised its rating from Hold to Buy.

The mean target of 13 analysts for the stock price is $37.56, with a range of $33.00 to $43.50. Currently the stock trades close to $31, which is lower than the bottom of the range, and clearly far below where analysts expects the stock to be at in the short term.

Richard Moroney, editor of Dow Theory Forecasts, appears to be a strong believer in Accenture, and last week, reminded his clients that Accenture is a buy in his opinion, and noted that the company was steadily moving up in rankings in his quantitative numbers-based ranking system called Quadrix. Morningstar also expects Accenture to make the estimate. Even Jim Cramer, the hyper-uber stock analyst at CNBC’s Mad Money likes Accenture at $30.
We believe that Accenture is in a strong position, and very likely to meat or even beat these estimates, despite the tough bar being set by Wall Street. It has a very performance oriented culture, and has been able to successfully avoid the downdraft from the slowing global economy. Revenue shows no signs of slowing as Accenture increases its Consulting and Outsourcing footprint deeper into existing and new clients by providing innovative solutions which reduce operating costs. Moreover, it has a very strong balance sheet with $2.8 billion in cash and only a nominal debt of $1.1 billion. Two additional positive factors - consultant utilization for Q1-2009 was 83% same as Q1-2008 and attrition was 13%, a full 4% below 17% in Q1-2008.

In terms of its own forecasts, Accenture expects Q2-2009 revenues to be $5.45 billion - $5.65 billion, with a negative impact of 8-10% coming from FX and an appreciating US dollar. And the company expects diluted EPS for FY 2009 to be $2.78 - $2.85

Traditionally, the second quarter has the lowest earnings among all four quarters, reflecting the seasonality of the business. But that is not to say that the company may not blow past these earnings consensus. For the quarter Q1-2009 ending November 2008, Accenture’s actual EPS was 74 cents 8.8% higher than consensus of 68 cents. For the last four quarters, the company has been consistently and handily beating analyst consensus EPS estimates.

Accenture reports after the market closes on March 26th, and we are anticipating news which will please investors.