Despite firing on all cylinders, producing revenues and profits that 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 some 14% over the past thirty days, while falling 17% in six months. Now down 34% year-to-date, compared to 18% decline in the S&P 500 index, investors want to know if it’s time to establish a long-term position. Accenture will look to answer that question it reports fourth quarter fiscal 2022 earnings results before of the opening bell Thursday. A leading specialist in the 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. And this growth will continue through 2025, according to research firm Gartner, which predicts organizations will “increase their reliance on external consultants.” In the most-recent quarter, its revenue grew 22% year-over-year, while adjusted EPS grew 25% 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. As such, the company has to convince the Street that not only can it sustain its current growth rate, but that growth rate can accelerate profitably. Just as important, Accenture’s guidance on Thursday will be looked upon to assess not only the company’s stock valuation, but also whether (and how soon) Gartner’s growth prediction will prove true.
For the quarter that ended August, Wall Street expects Accenture to earn $2.58 per share on revenue of $15.4 billion. This compares to the year-ago quarter when earnings came to $1.95 per share on revenue of $11.9 billion. For the full year, earnings are projected to rise 37% year-over-year to $10.71 per share, up from $7.80 a year ago, while full-year revenue of $61.68 billion will rise 37.6% year-over-year.
Accenture’s management team, which has raised guidance on multiple occasions over the past few quarters, continue 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.
Its investments align with Gartner’s growth forecast. However, beyond its consulting projects, Accenture also relies heavily on its other segments, which includes accounting, procurement and application services. These collective businesses are growing impressively and have led to six straight earnings beats. In the third quarter, its revenue grew 22% year-over-year to $16.16 billion, albeit marking a slight deceleration from previous quarter by five percentage points.
Q3 adjusted EPS of $2.79 per share was 3 cents above Street estimates. During the quarter, Accenture benefited from new bookings of $17 billion, up 15% year-over-year, marking the company’s second-highest total. New bookings is a closely-watched metric which measures the strength of future revenue. Accenture also indicated there is no sign of slowing down, raising the range for full-year revenue growth to 25.5% to 26.5%.
On Thursday, investors will want to see Accenture improve on these metrics, demonstrating not only the level of confidence the company has within its market position, but also the attractive valuation of its shares relative to its operating performance.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.