Accenture (ACN) will report fourth quarter fiscal 2020 earnings results before of the opening bell Thursday. With the stock up more than 15% in three months, the enterprise IT consulting specialist is accentuating its strength, despite business disruptions caused by the pandemic.
After a slow start to the year, Accenture shares have come roaring back over the past six months, surging some 50%, outperforming the 32% rise of the S&P 500 index in that span. Questions were raised about the prospect of discretionary IT spending, which some analysts believed would take more than a year to sort out. But Accenture, which provides consulting and outsourcing services for companies, seems to believe the recovery has already begun and is looking at ways to maintain its leading position in the IT services market.
The company’s consulting projects, which make up roughly 55% of total revenues, cover areas like strategy and broad fields including blockchain, technology and digital transformation. And it recently announced the formation of Accenture Cloud First, spending some $3 billion over three years. The company says the initiative aims to help clients across all industries rapidly become “cloud first” businesses and accelerate their digital transformation. Analysts will want to know how to factor this $3 billion investment into their earnings projections and asses whether there will be pandemic-related headwinds.
For the quarter that ended August, Wall Street expects Accenture to earn $1.73 per share on revenue of $10.89 billion. This compares to the year-ago quarter when earnings came to $1.74 per share on revenue of $11.06 billion. For the full year, earnings are projected to be $7.64 per share, up 3.8% from $7.36 a year ago, while full-year revenue of $44.38 billion would be an increase of 3% year over year.
Accenture also relies heavily on its other business segments, which includes services such as accounting, procurement services and application services. At the height of the pandemic, many of these services were seen as “discretionary,” meaning non-essential to business growth or continuity. Now the question is how much demand there is in these areas, given the current uncertainty surrounding the economy and the likelihood of reduced IT spending. Investors are betting that Accenture's strong industry relationships could enable it to retain its pricing power over its competitors.
What’s more, Accenture’s ability to leverage partnerships with the likes of Microsoft (MSFT) and Salesforce (CRM) has enabled the company to scale its platform to increase its value offerings to its customers. These solutions have enabled the company to deliver another top and bottom line beat in the Q3 with consulting revenue surpassing consensus estimates by $110 million, while EPS of $1.90 beat by 6 cents. The beat came in despite a 4% decline in revenue.
Third quarter Outsourcing revenue rose 3% to $5 billion, while new bookings rose 4% to $11 billion. Notably, operating margin was came in at 15.6%, beating consensus estimates of 15.3% and 10 basis points higher year over year. Investors will want to see Accenture build on this positive metric on Thursday. The guidance for next year will be another closely-watched metric, which would indicate the level of confidence the company has about its market position.
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