Is Accenture Stock a Smart Investment?

The well-known global professional services company Accenture plc (ACN) offers consulting and technology services to more than 40 industries, serving clients in more than 120 countries. But even ACN was a victim of the massive COVID-19-driven market sell-off in March 2020, hitting its 52-week low of $137.15 on March 23, 2020.

The  stock has gained 71.7% since then, however, and is currently trading 5.1% below its 52-week high of $271.18, which it hit on December 17, 2020. And given the company’s huge market reach, it is expected to generate significant returns in the coming months as well.

Here is why we think investing in ACN could be smart move now:

Impressive Reputation Backed by Growth

As the world undergoes rapid digitalization, several businesses are  undergoing rapid transformation  to stay relevant and meet  market demand. ACN is well positioned in this regard thanks to its wide market reach and other companies’ reliance on its services. As of the end of last year,  ACN had made 18 consecutive appearances on Fortune‘s ‘World’s Most Admired Companies’ list.

ACN’s revenue has increased at a CAGR of 7.3% over the past  three years and its EPS has increased at a CAGR of 12.9%. Also, the company’s EBITDA increased at a CAGR of 8.7% over the same period.

Robust Recent Financials

ACN’s top line climbed 3.5% year-over-year to $11.76 billion for the fiscal 2021 first quarter ended November 30, 2020. Its outsourcing revenue, which accounted for 46.2% of its total revenue, increased nearly 9% year-over-year to $5.43 billion. Its net income increased 10.7% year-over-year to $1.52 billion over the same time period,  and its non-GAAP EPS of $2.17 increased 8% year-over-year.

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Moreover, the company has an impressive earnings surprise history; it  beat the Street’s EPS estimates in each of the trailing four quarters.

Expanding Cloud Business

ACN has had a relationship with Vmware, Inc. (VMW) for more than two decades. This  month ACN expanded its partnership with the company to help organizations adopt a ‘cloud first’ strategy. ACN’s expansion of its  cloud segment is expected to be quite profitable because  its demand in that sector is  expected to increase in the coming months.

This month, Kaiser Permanente also collaborated with ACN and Microsoft Corporation (MSFT) to enhance its innovative, scalable hosted cloud environment. Also, ACN acquired Businet System earlier this month. Businet  is a leader in developing and operating Salesforce Commerce Cloud-based ecommerce sites in Japan.

Analyst Estimates and Consensus Price Target Indicate Upside

Analysts expect the company’s revenue to increase 7.9% in 2021 and 7.4% in 2022. Its EPS is expected to grow 13.7% for the quarter ending May 31, 2021, 10.3% next year and at a rate of 9.9% per annum over the next five years.

Wall Street analysts expect the stock to hit  $281.36 in the near term, which indicates a potential upside of 8.7%.

POWR Ratings Indicate Solid Prospects

ACN has an overall rating of B which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. Among  these categories, ACN has a grade of B for Momentum. This is consistent with the stock’s 12.1% gain over the past six months and 8.1% gain over the past three months.

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ACN has a grade of B for Quality as well. This is justified given its gross profit margin of 31.8%. The stock has a grade of B for Stability as well.

Along with the grades  stated above, the stock’s grades for Growth, Value and Sentiment are available here.

The stock is ranked #5 of 14 stocks in the A-rated Outsourcing – Tech Services industry.

Click here to access eight other top-rated stocks in the same industry.

Bottom Line

We think ACN is a great pick given its wide market reach and strong financials. Moreover, the company’s aggressive expansion in the cloud segment is expected to give it an  edge over many of its competitors.

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ACN shares were trading at $259.00 per share on Tuesday morning, up $1.53 (+0.59%). Year-to-date, ACN has declined -0.51%, versus a 5.42% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More…

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