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Investment Overview for Accenture (NYSE:ACN)
Below are key drivers of Accentures's value that present opportunities for upside or downside to the current Trefis price estimate for Accenture
- Technology Outsourcing Revenue: We currently estimate that Technology outsourcing revenues will grow at nearly 7% per year till the end of our forecast period. Currently, we estimate that revenues are $7.1 billion in 2011. If revenues were to grow at a much slower rate of ~1% due to competition and Europe slowdown concerns, we can expect a 10% downside to the current Trefis Price estimate. If outsourcing revenues grow at a rate of 15%, we can expect an upside of 15% to the current Trefis Price estimate.
- Management Consulting EBITDA Margins: We forecast that Management Consulting EBITDA profit margins will remain flat at its 2011-2012 level of ~20% for the rest of the Trefis forecast period. If EBITDA margins were to increase to 25% by the end of the forecast period, we can expect a 10% upside to the current Trefis price estimate. If margins fall due to a slowly recovering economy and Europe slowdown concerns, and reach 15%, we can expect a ~5% downside to the current Trefis price estimate.
Accenture offers outsourcing and consulting services primarily to Fortune 500 companies. It helps its clients improve their business processes by leveraging technology and utilizing outsourced service providers wherever appropriate. For instance Accenture may help the IT department of a client to outsource the development and maintenance of software applications used by company employees. The clients benefit through long term IT cost savings and improved processes for application development.
In Technology Consulting, Accenture competes with IBM at the top of the heap. Accenture's expertise in the technology space includes IT Strategy, Enterprise IT Architecture and Infrastructure, Management of Data (Security, Privacy and Storage), and the entire spectrum of Application Software, ranging from development to maintenance.
Accenture is one of the best positioned companies in IT Services in today's economic context because of three reasons:
- It has a very resilient business model with a healthy mix of outsourcing and consulting at a ~45/55 revenue ratio.
The firm is a market leader in outsourcing and is the growth engine of IT Services along with IBM and HP, supported by its extensive Global Delivery Network (GDN)
It has a strong consulting practice along with IBM in the IT space and supported by its ability to leverage specialized industry expertise through its group of management consultants.
Market Leader in Outsourcing
The share of outsourcing in Accenture's revenues has gradually increased from ~ 35% in 2005 to ~42% in 2011. We expect it to stabilize around the current level going forward. Outsourcing is the growth engine of IT Services and Accenture is among the leaders in the space. Accenture is a market leader in 'Application Outsourcing' and among the top players in 'Business Process Outsourcing' and 'Infrastructure Outsourcing' along with IBM, HP and the top Indian players.
Growing Demand for Software Application Outsourcing
Since software development and maintenance is easier to outsource as compared to outsourcing complete processes or IT infrastructure (given the increased complexity), Application Outsourcing is growing faster than BPO and Infrastructure Outsourcing.
Trefis Forecast Rationale for Technology Consultant Headcount
This refers to the total number of employees available in a particular division for projects.
Headcount has increased by almost 30% from 2005 to 2008 as Accenture has ramped up its headcount owing to increase in business demand.
For a services firm like Accenture the demand for a particular business drives the headcount numbers and utilization during the given year.
In 2009 headcount decreased by more than 5% as the global economy went into recession and significantly decreased the demand for technology consulting with firms around the world looking to cut costs.
In 2010 as the economic environment showed some signs of improvement, Accenture increased its headcount by as much as 15% expecting a surge in future demand.
Headcount increased by another 10% in 2011 to reach ~29K and going forward we expect the headcount to grow very slowly.
Trefis considered the following factors for its forecast
Back to Company Overview
- As the economy showed signs of improvement in 2010 - 2011, Accenture increased its headcount, anticipating a surge in business in the future.
- The firm has made extensive hiring taking advantage of the economic situation, hiring best-in-class talent at cheap rates, and we expect the growth in the headcount in the future to be minimal.
- As the business environment recovers, Accenture's leadership in the field of Technology Consulting along with IBM should help it drive demand for business which will prompt an increase in consulting demand and consequently headcount.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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