ACN

Accenture plc

318.45
USD
-0.73%
318.45
USD
-0.73%
261.77 417.37
52 weeks
52 weeks

Mkt Cap 212.23B

Shares Out 666.43M

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Is Accenture Stock a Buy Now?

Accenture (NYSE: ACN) posted its third-quarter earnings results on June 23. The IT services giant's revenue rose 22% year over year (27% in local currency terms) to $16.2 billion, which beat analysts' expectations by $200 million. Its net income grew 15% to $1.79 billion, or $2.79 per share, but fell short of the consensus forecast by $0.04 per share. It mainly attributed that miss to a $0.15-PER-SHARE impact from the shutdown of its Russian business. Accenture's headline numbers looked solid, but its stock barely budged after the report. Should investors pick up some shares of this blue chip tech stock as a defensive play in this turbulent market? Another quarter of double-digit sales growth Accenture serves five main markets: communications, media, and tech (which generated 21% of its third-quarter revenue); financial services (19%); health and public services (18%); products (28%); and resources (13%). Back in fiscal 2020 (which ended in August of the calendar year), Accenture's growth cooled off as its clients curbed their IT spending during the onset of the pandemic. But over the past five quarters, the company generated double-digit sales growth as those headwinds waned in a post-lockdown market. Just look at the year-over-year revenue growth in the table below: Communications, media, and tech 19% 23% 32% 32% 31% Financial services 16% 20% 24% 25% 24% Health and public services 21% 18% 23% 21% 19% Products 17% 25% 34% 34% 31% Resources 3% 13% 17% 25% 26% Total 16% 21% 27% 28% 27% During the conference call, CEO Julie Sweet said Accenture's long-term growth will be driven by "five forces that our clients must harness over the next decade" -- namely, "total enterprise reinvention, talent, sustainability, the Metaverse continuum, and the ongoing tech revolution." Sweet mainly attributed Accenture's recent growth to two of those forces: total enterprise reinvention, which revolves around digitally transforming "every part of every business" for operating efficiency; and talent, in which it helps companies hire and nurture new employees. Sweet noted that going forward, the "common theme" for Accenture's business was that its clients will turn to its services to "effectively use technology to achieve their goals." Accenture expects that momentum to continue through the end of the year. That's why it raised its full-year revenue guidance, in local currency terms, from 24%-26% growth to 25.5%-26.5% growth. In U.S. dollar terms, it expects currency headwinds to reduce its reported growth by about 4.5%. Expanding margin and robust earnings growth Accenture's operating margin expanded both year over year and sequentially to 16.1% during the third quarter. Its earnings per share (EPS) have also increased by double digits for five consecutive quarters. For the full year, Accenture expects its operating margin to rise 10 basis points to 15.2%, even as it ramps up its investments in a post-lockdown market. It expects its EPS to increase 21%-22%, even after absorbing a $0.14 impact from the aforementioned currency headwinds. That range was slightly reduced from its previous forecast for 21%-23% growth. Accenture also reiterated its prior guidance for generating $8 billion-$8.5 billion in free cash flow (FCF) for the full year, compared to $8.1 billion in fiscal 2021, as well as its plans to return at least $6.5 billion of that cash to its investors via buybacks and dividends. It currently pays a forward dividend yield of 1.4%. It looks like a great buy right now I've previously praised Accenture as a rock-solid company -- but I've also warned that its higher valuation would limit its upside potential. However, its stock has already stumbled about 30% this year amid the broader tech sell-off, and it now looks a lot cheaper at 27 times this year's earnings. By comparison, Accenture's smaller rival Globant (NYSE: GLOB), which is growing slightly faster, trades at 65 times forward earnings. SAP (NYSE: SAP), which is growing much slower than Globant and Accenture, has a forward price-to-earnings ratio of 18. Therefore, Accenture now looks reasonably valued relative to its industry peers and its own near-term growth rates. Accenture isn't an exciting hypergrowth stock, but it generates stable revenue, earnings, and FCF growth while trading at an attractive valuation. Those qualities make it a great stock to own as rising rates rattle the market. 10 stocks we like better than Accenture When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* They just revealed what they believe are the ten best stocks for investors to buy right now... and Accenture wasn't one of them! That's right -- they think these 10 stocks are even better buys. *Stock Advisor returns as of June 2, 2022 Leo Sun has positions in Accenture. The Motley Fool has positions in and recommends Accenture and Globant. The Motley Fool recommends SAP SE. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

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