Accenture Wins by Losing

Investors applauded the technology service company's unloading of problem contracts

Accenture's (ACN) stock hit a 52-week high on Sept. 29, after the technology services company handed large problem contracts with the U.K. National Health Service (NHS) to its rival Computer Sciences Corp. (CSC).

After walking away from the two agreements to provide information technology services, Accenture said late Sept. 28 that it slashed its net revenues in the fourth quarter by $339 million to $3.97 billion. Net revenues had amounted to $3.92 billion for the fourth quarter of fiscal 2005.

Even so, a corresponding reduction in costs resulted in no impact on the company's earnings per share (EPS) for the quarter. On an adjusted basis, Accenture had $0.39 EPS during the three month period ended Aug. 31, compared to $0.32 during the same period of 2005.

"I'm delighted that we have resolved the NHS contracts, arriving at an agreement that benefits all parties, is clearly in the best interest of our shareholders, and puts this matter successfully behind us," said William D. Green, Accenture's chairman and CEO.

Accenture now expects to have diluted EPS for the full fiscal year in the range of $1.77 to $1.82.

The company's stock price climbed more than 2% to $32.26 per share in early afternoon trading on the New York Stock Exchange. Earlier in the day, it hit a 52-week high of $33.15 per share from $24.54 on Oct 13, 2005. The shares have surged considerably since Sept. 27, when they had closed at $29.36.

"The benefits of the contract's transition for the financial health of the company will outweigh the negative image Accenture will likely get from "abandoning its client," Technology Business Research analyst Eugene Zakharov said in a research note. He pointed out that CSC, which will take over the contracts, valued them at up to $3.73 billion over nine years. The information technology services deals had made Accenture record a loss provision of $450 million earlier in the year.

The Street reacted so positively to the news, Standard & Poor's downgraded Accenture's stock to hold from buy, explaining that it has gotten too pricey after its recent gain in value. But S&P hiked its fiscal year 2007 EPS estimate by a penny to $1.81 in order to reflect the transfer of the U.K. National Health Service contract. (S&P, like, is owned by The McGraw-Hill Companies.)

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