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Accenture Rides Clients’ Disruption Avoidance; Stock Rides New High

Shares of Accenture, the tech outsourcing and consulting company, jumped to a record high Thursday after the company reported a 24% improvement in fiscal second-quarter earnings, well beyond what Wall Street expected. It also beat revenue estimates. The company also raised its earnings guidance for the fiscal year ending in August. The improvements are driven by the digital transformation of Accenture’s customers and their fear of disruption, according to the CEO. Accenture ( ACN ) stock was up 5.5% in afternoon trading in the stock market today , above 113 and up more than 20% from a seven-month low of  93.35 hit on Feb. 9, in the depths of the infamous Software Sag of 2016. Rivals  IBM ( IBM ) and  Cognizant Technology Solutions ( CTSH ) were each up more than 1.7% Thursday afternoon, and India tech outsourcer  Infosys ( INFY ) was up nearly 1%. Dublin-based Accenture said adjusted EPS reached $1.34 after removing income taxes and the gain on the sale of Navitaire, vs. $1.08 a year ago, on revenue up 6% to $7.9 billion. Analysts polled by Thomson Reuters expected EPS of $1.18 minus items for the quarter ended Feb. 29 on revenue of $7.72 billion. “We are benefiting from the focused investments we are making to rotate our business to new, high-growth areas where our capabilities are clearly resonating with the needs of our clients and differentiating us in the marketplace,” said Accenture CEO Pierre Nanterme in the earnings release. “At the same time, we continue to manage Accenture with discipline to further enhance our competitiveness. We remain very well-positioned to continue driving profitable growth and delivering value for our clients and shareholders.” Accenture CEO: Economic Environment Sluggish In the company’s earnings conference call with analysts, Nanterme, echoing his remarks in October,  said, “The overall economic environment is sluggish, to say the least … unstable, risky, extraordinarily complex.” He said he is “not noticing” much change in the sources of revenue from his customers, but “it’s all about digitalization. … All the leaders in all the industries are subject to disruption. That’s the new factor in town. It’s about not being disrupted … . I see this cycle is here for quite a while. They have to invest (into) rationalization of the operations, IT efficiency …  across the board … (which)  is driving our business.” The company guided the current Q3 revenue to $8.1 billion to $8.35 billion, up 7% to 10% in local currency after assuming a 2.5% foreign exchange impact, compared with $8.275 billion a year ago. The midpoint is slightly above analyst views. The company didn’t project Q3 earnings, but analysts expect EPS ex items of $1.42, up 9%. Accenture raised its fiscal year earnings guidance to $5.21 to $5.32 per share excluding the after-tax impact of the gain on the sale of Navitaire vs. its earlier guidance of $5.09 to $5.24. Analysts were modeling $5.22, up 8.3% from $4.82 in fiscal 2015. At the new $5.265 midpoint, the fresh guidance represents a 9.2% gain for adjusted EPS. Accenture said sales for its communications, media and technology unit rose 6% to $1.61 billion; financial services also rose 6%, to $1.59 billion; health and public services rose 12% to $1.48 billion; and products rose 8% to $1.85 billion. But resources, which include the struggling energy industry, fell 3% to $1.21 billion. North America sales rose 11% to $3.41 billion, while Europe rose 5% growth to $2.78 billion and growth markets slowed 4% to $1.37 billion. The company declared a semiannual cash dividend of $1.10 per share. In Q2 it repurchased or redeemed 8.1 million shares for $829 million, bringing the total spent  on repurchases to $1.49 billion for the year. With an IBD Composite Rating of 82, Accenture is one of the better performers in IBD’s Computer-Tech Services industry group, among the top 18% of all stocks on a variety of metrics, including earnings and sales growth and stock performance. The biggest company in the group, IBM, rates a 55 CR. Infosys has an 87 CR and Cognizant an 84. Image provided by Shutterstock .

Accenture Survives Software Sag Of ’16; Stock Flirts With Record

Seemingly fully recovered from the infamous Software Sag of 2016 in January and February, big-cap Accenture ( ACN ) is flirting with a record-high stock price amid growth in its services, as it heads towards its fiscal Q2 earnings release due before the market open Thursday. Accenture stock was down a fraction in early trading in the stock market today , near 108, 18% above its seven-month low of 91.40 touched on Feb. 9 and just 2% off an all-time high of 109.86 set Oct. 28. Analysts polled by Thomson Reuters on average estimated Accenture earned $1.18 per share minus items for the quarter ended in February, up 9% from the year-earlier period, on revenue of $7.72 billion, down 2.6%. Accenture guided Q2 to $7.62 billion at the midpoint of its range. Dublin-based Accenture “cited no weakness in its financial services pipeline” during its Q1 earnings release on Dec. 17, wrote Cowen analyst Bryan Bergin in a recent research note. “This was (about) three weeks before a tumultuous start to 2016, and nearly two months prior to (services rival Cognizant Technology Solutions ( CTSH )) sounding warning bells in its banking and financial services vertical.” In the Cowen Feb. 25 research note, entitled “The Sky Does Not Appear to be Falling in Financial Services IT Spending,” Bergin wrote that “vendors that have noted service interruption have generally tied such weakness to a handful of specific clients. There have been Indian vendors with reports of healthy internal fiscal 2017 revenue growth targets, (notably Infosys ( INFY ) and Wipro ( WIT )) and positive industry demand narratives across investor days by ( Genpact ( G ), Epam Systems ( EPAM ) and Tata Consultancy Services) that have not yielded indications of across-the-board financials’ spending declines.” He noted that Accenture has grown revenue in financial services in constant currency in four of the last five quarters, although financial clients represent only 21% of Accenture revenue in the last 12 months. In a research note last week, Trefis applauded Accenture for a “very resilient business model,” with 45% of its business in outsourcing and 55% in consulting. Cowen rates Accenture stock at outperform, with a 115 price target. With a healthy IBD Composite Rating (CR) of 80, meaning its stock is outperforming 80% of S&P 500 issues in a variety of metrics, Accenture is worth about half of IBM ‘s ( IBM ) $142.8 billion in terms of market cap. IBM has a weak 56 CR. Infosys, with an 86 CR, has a $42.5 billion market cap, while Cognizant, with an 83 CR, is worth about $36.2 billion based on its stock price. Newly freed from PCs and printers, Hewlett Packard Enterprise ( HPE ) earns a 65 CR, with a $30.4 billion market cap. Slightly smaller Wipro carries a 68 CR, with $30.3 billion in market value. Those six companies comprise the largest members of IBD’s Computer-Tech Services industry group.

Genpact Sees Surge In Outsourcing Business; BPO Stocks Up

Highly rated but modestly traded Genpact ( G ) stock bumped up a fraction Friday, after a day of show-and-tell at its analyst day Thursday that spotlighted a surge of growth for the outsourcing business. Many rival stocks were up even more, with Paychex ( PAYX ) stock up 2% in midday trading in the stock market today . William Blair analyst Anil Doradla came away “with the sense that business fundamentals were intact and that the company’s deal pipeline is healthy,” he wrote in a research note Friday. Genpact executives suggested that the company had plenty of room for growth in its business process outsourcing market, because revenue for the market overall rose 35%, to $500 billion, in the past year, while Genpact sales rose 8%, to $2.46 billion, Doradla said. But he also said BPO growth will slow. Doradla put Genpact trading at 18.8 times William Blair’s 2016 EPS estimate for Genpact, “a slight premium to its peers in the fast-growth BPO industry,” which is trading at 17.6 times estimated earnings, he said. BPO is found in more than one industry group. In IBD’s Commercial Services-Outsourcing group, Genpact ranks as the fourth-largest company, with a market cap of $5.6 billion. The group is led by Paychex with an $18.9 billion market value, Cintas ( CTAS ) at $9.5 billion and Aramark ( ARMK ) at $7.7 billion. Shares of both Cintas and Aramark were up more than 1% midday Friday. IBD’s Computer-Tech Services also hosts some heavyweight outsourcers, including Infosys ( INFY ) with a $40.3 billion market cap, and Cognizant Technology Solutions ( CTSH ) at $33.9 billion. IBM ( IBM ) is included in this group, although it does much more than outsourcing. Infosys stock was up a fraction midday Friday, while Cognizant was more than 2% and IBM nearly 2%. Genpact specializes in financial services outsourcing, contributing about 42% of its revenue. Manufacturing and health care are its other two main markets. Sales to its largest customer, General Electric ( GE ), fell 1% last year to 19% of Genpact’s total revenue. Genpact is a GE spinoff. “Overall, we came away with a bullish tone from management, both at a company-specific level and with regard to the overall BPO market,” Doradla said. “Management highlighted that the company is witnessing healthy demand in its business and that Genpact has an active deal pipeline. “Some of the key drivers for the upwardly revised figures include customers increasingly viewing BPO companies as transformation partners who not only offer a cost arbitrage, but also provide valuable insights into business operations. Specific areas in which the industry is increasingly engaging clients include IoT, big data and cybersecurity. “Bottom line, we believe that the BPO industry is poised for strong overall growth over the next several years and that Genpact stands to grow at a faster pace than the overall industry due to domain expertise and strong client relationships.” Genpact carries an IBD Composite Rating of 96, with 99 the highest, and currently is an IBD Leaderboard stock. Trading near 26.50 midday Friday, it is within range from a 26 buy point touched last month.