Despite firing on all cylinders with revenues and profits, which have risen strongly over the past several quarters, Accenture (ACN) stock hasn’t avoided the punishment that has ravaged the software sector and the overall market.
The stock has fallen 32% over the past six months and is down 34% year to date, compared to 23% decline in the S&P 500 index. Investors are wondering whether this is a buying opportunity. Accenture will look to answer that question it reports third quarter fiscal 2022 earnings results before of the opening bell Thursday. A leading specialist in IT consulting and outsourcing, Accenture’s business has benefited immensely from the rapid growing demand not only for IT services, but also from increased cloud adoption and digital transition.
The company’s consulting projects, which make up roughly 55% of total revenues, cover areas such as strategy and broad fields including blockchain, technology and digital transformation. In the most recent quarter, its revenue grew 24.5% year over year, while adjusted EPS grew 25% year over year. And this sort of growth is poised to continue through 2025, according to research firm Gartner, which predicts organizations will “increase their reliance on external consultants.” The company’s guidance on Thursday will determine whether Gartner’s prediction will prove true.
For the quarter that ended May, Wall Street expects Accenture to earn $2.85 per share on revenue of $16.05 billion. This compares to the year-ago quarter when earnings came to $2.40 per share on revenue of $13.26 billion. For the full year, ending August, earnings are projected to be $10.35 per share, up 32% from $7.80 a year ago, while full-year revenue of $59.25 billion will rise 32.2% year over year.
While there is some evidence to suggests IT spending has improved, there’s also the concern of a massive pull-forward that has already occurred. The company has to convince the Street that not only can it sustain its current growth rate, but that growth rate can accelerate profitably. Accenture’s management team, which has raised guidance on multiple occasions over the past few quarters, continues to execute on their stated objectives, finding ways to leverage the digitalization trend and increased company’s competitive scale.
The company recently announced the formation of Accenture Cloud First, spending some $3 billion over three years, strategically positioning the company for sustained IT spending across all industries. The company’s investments aligns with predictions from research firm Gartner which forecasts IT spending growth “will continue through 2025, predicting organizations will increase their reliance on external consultants.” Beyond its consulting projects, Accenture also relies heavily on its other segments, which includes accounting, procurement and application services.
As noted, these collective businesses are growing impressively and have lead to six straight earnings beats. In the fiscal second quarter, its revenue grew 24.47% year over year to $15.05 billion, albeit marking a slight deceleration from previous quarter by three percentage points. Q2 adjusted EPS also topped estimates, rising 25% to $2.54 per share. The company benefited from record new bookings of $19.6 billion, up 22% year over year.
New bookings, a closely-watched metric which measures the strength of future revenue. Just as impressive, consulting bookings and outsourcing bookings, which came in respectively at $10.9 billion and $8.7 billion were company records. Accenture also indicated there is no sign of slowing down, raising the range for full-year revenue growth to 24% to 26%, while also raising EPS range to $10.61 to $10.81, above consensus range of $10.54 per share.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.