Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. Â This isÂ best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another companyÂ or by reviewing theÂ 5 Undervalued Companies for the Defensive Investor Near 52 Week Lows.Â By using theÂ ModernGraham methodÂ one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. Â What follows is a specific look at how Accenture plc (ACN)Â fares in theÂ ModernGraham valuation model.
Company ProfileÂ (obtained fromÂ Google Finance):Â Accenture plc (Accenture), is engaged in providing management consulting, technology and outsourcing services. The Companyâ€™s business is structured around five operating groups, which together consists of 19 industry groups serving clients in industries globally. The Companyâ€™s segment includes Communications, Media & Technology, Financial Services, Health & Public Service, Products and Resources. In February 2014, Accenture PLC completed its acquisition of ClientHouse, an independent provider of salesforce.com and Veeva Systems solutions. In March 2014, Accenture PLC completed the acquisition of the industrial and embedded software development and services business of evopro group. Effective May 15, 2014, Accenture PLC of Ireland, acquired i4C Analytics Srl, a Rozzano-based provider of application services.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
- Earnings Stability – positive earnings per share for at least 10 straight years -Â PASS
- Dividend Record – has paid a dividend for at least 10 straight years -Â PASS
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
- Moderate PEmg ratio – PEmg is less than 20 -Â FAIL
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend -Â PASS
- Earnings growth – EPSmg greater than 5 years ago -Â PASS
|MG Opinion||Fairly Valued|
|Value Based on 3% Growth||$57.78|
|Value Based on 0% Growth||$33.87|
|Market-Implied Growth Rate||6.23%|
Balance Sheet – 2/28/2014
Earnings Per Share
Earnings Per Share – ModernGraham
Accenture satisfies the Enterprising Investor but not the Defensive Investor. Â The Defensive Investor is concerned with the company’s low current ratio and its high PEmg and PB ratios while the Enterprising Investor is only concerned with the low current ratio. Â As a result,Â Enterprising InvestorsÂ following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities through a review of ModernGraham’s valuation of International Business Machines (IBM) and ModernGraham’s valuation of Infosys Ltd (INFY). Â As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.99 in 2010 to an estimated $3.98 for 2014. Â This level of demonstrated growth supports the market’s implied estimate of 6.23% earnings growth and leads the ModernGraham valuation model, which is based on one of Benjamin Graham’s formulas, to return an estimate of intrinsic value falling within a margin of safety relative to the price.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects. Â What do you think? Â What value would you put on Accenture plc (ACN)? Â Where do you see the company going in the future? Â Is there a company you like better? Â Leave aÂ comment on ourÂ Facebook pageÂ or mentionÂ @ModernGrahamÂ on Twitter to discuss.
Be sure to review the previousÂ ModernGraham Valuations of Accenture plc (ACN)!
Disclaimer: Â The author did not hold a position in Accenture plc (ACN) or any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.
Logo taken from wikipedia; this article is not affiliated with the company in any manner.