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Is Accenture Stock a Buy?

By Anne Burdakin - Mar 11, 2020 at 9:12AM

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The company's data-driven technology consulting builds business by leaps and bounds.

Accenture (ACN 0.40%), a Fortune Global 500 company, provides services in strategy, operations, consulting, and technology to companies around the world. Accenture counts among its clients more than three-quarters of the Fortune Global 500, and 91 of the top 100. The company cultivates long-term client relationships with 95 of its largest 100 clients having been with Accenture for 10 years or more. 

Accenture develops this customer loyalty by anticipating needs and offering expertise in maximizing growth opportunities for clients. CEO Julie Sweet said, "We create value for our clients from building out their digital core to helping them innovate across their growth agenda and realize significant value from optimizing their operations. The new digital, cloud, and security is now our core, accounting for about 65% of total revenues." 

Give clients what they need to prosper

Accenture has five operating groups: communication, media, and technology; financial services; health and public service; products (like consumer goods); and resources (such as chemicals and energy). The operating groups are staffed by industry specialists who provide research, consulting services, and technology solutions to their relevant sectors.

Key to Accenture's core business is its Intelligent Platform Services business, which accounts for 40% of total revenue and posted double-digit growth in fiscal 2019. 

Staff with laptops in a meeting.

Image source: Getty Images.

Intelligent Platform Services leverage partnerships with SAP, Salesforce, Microsoft, Oracle, and Workday to guide client technology evolution. Accenture partnership relationships extend to cloud platforms, including Amazon Web Services, Microsoft Azure, and Google Cloud. 

For example, Accenture used artificial intelligence and communications industry resources to help Verizon improve the process of more than 70% of customer calls. The company helped Verizon reduce a 20-minute customer call with a human agent to a short three- to four-minute digital interaction. As a result, customers were served faster, agents were freed up to do more complex work, and the company streamlined operations. Accenture customizes and applies this process across industries. The Verizon solution was applied at the New Mexico Human Services Department, helping employees reduce the time providing Medicaid coverage to newborns by up to 75%, producing an immediate cost savings for the department. 

As enterprise technology solutions have become more complex, guidance like Accenture's has become increasingly valuable. The company's expertise and business runs the gamut of industries, and it's a global, evolving business that relies on collaboration. Accenture is investing in what they call Innovation Architecture, which combines research, ventures, labs, studios, and innovation centers across a network of more than 100 facilities. This makes sharing across the global organization a reality and allows the company to quickly provide clients with valuable insights.

Money is a yardstick of success

Accenture's strategy is working as illustrated by its financial results. First-quarter 2020 earnings, reported on Dec. 19, showed revenue of $11.4 billion versus $10.6 billion in the first quarter of 2019. Diluted earnings per share were $2.09 compared with $1.96 for the prior-year period. 

Overall fiscal-year 2019 highlights included record new bookings of $45.5 billion and free cash flow of $6.0 billion. The company returned a record $4.6 billion to shareholders through share repurchases and dividends. Diluted earnings per share came in at $7.36, a 9% increase over fiscal year 2018.

Company guidance for fiscal year 2020 was increased slightly after first-quarter 2020 earnings were announced. Accenture now forecasts revenue growth in the range of 6% to 8% in the local currency, and diluted earnings per share to be in the range of $7.66 to $7.84.

Currently, Accenture's trailing price-to-earnings ratio of 24 comes in below averages for both its sector and the S&P 500. Looking ahead, the stock trades at just 21 times forward earnings estimates.

What does this mean for investors?

Business is growing for Accenture and clients are loyal, building the company's reputation and brand in the marketplace. Risks lie in overall economic conditions, which could decrease corporate spending, potentially affecting Accenture's revenue. However, corporate cost-cutting efforts are often centered on decreasing IT expenditures and outsourcing, two of Accenture's strengths. The company's business would likely remain solid even in the event of an economic downturn.

Considering Accenture stock is somewhat undervalued compared to its industry and the broad market, combined with the company's growth initiatives and impressive client retention over the past decade, I believe Accenture stock is a buy. Investors can sleep easily at night knowing this company is staying on the cutting edge of technology and helping its clients harness that power.

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Stocks Mentioned

Accenture plc Stock Quote
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Oracle Corporation Stock Quote
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Workday, Inc. Stock Quote
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SAP Stock Quote
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