Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – July 2016. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a stock analysis showing a specific look at how Accenture PLC (ACN) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Accenture plc is engaged in providing management consulting, technology and outsourcing services. The Company’s business is structured around five operating groups, which together consists of 19 industry groups serving clients in industries globally. The Company’s segment includes Communications, Media & Technology, Financial Services, Health & Public Service, Products and Resources. The Communications, Media & Technology segment serves the communications, electronics, technology, media and entertainment industries. The Financial Services segment serves the banking, capital markets and insurance industries. The Health & Public Service segment serves healthcare payers and providers, government departments, public service organizations, educational institutions and non-profit organizations. The Products segment serves consumer-relevant industries. The Resources segment serves the chemicals, energy, forest products, metals and mining, utilities and related industries.
Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$75,150,730,342||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||1.42||Fail|
|3. Earnings Stability||Positive EPS for 10 years prior||Pass|
|4. Dividend Record||Dividend Payments for 10 years prior||Pass|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||117.00%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||22.47||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||10.72||Fail|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||1.42||Fail|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||0.01||Pass|
|3. Earnings Stability||Positive EPS for 5 years prior||Pass|
|4. Dividend Record||Currently Pays Dividend||Pass|
|5. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||8.75%|
|MG Value based on 3% Growth||$73.95|
|MG Value based on 0% Growth||$43.35|
|Market Implied Growth Rate||6.99%|
|% of Intrinsic Value||86.41%|
Accenture Plc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor is only concerned with the low current ratio. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $3.22 in 2012 to an estimated $5.1 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 6.99% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.
At the time of valuation, further research into Accenture Plc revealed the company was trading above its Graham Number of $34.02. The company pays a dividend of $2.2 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 22.47, which was above the industry average of 21.38. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-0.73.
Accenture Plc receives an average overall rating in the ModernGraham grading system, scoring a C.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$0.73|
|Number of Consecutive Years of Dividend Growth||5|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||5/1/2016|
|Total Current Assets||$11,576,011,000|
|Total Current Liabilities||$8,161,133,000|
|Shares Outstanding (Diluted Average)||666,403,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$6.04|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$5.10|
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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. See my current holdings here. This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions. ModernGraham is not affiliated with the company in any manner. Please be sure to review our detailed disclaimer.