Compared to other tech/software stocks, Accenture (ACN) stands out as one of the better-performing stocks over the past six months and on a year-to-date basis, during which the share price has returned 32% and 42%, respectively. But can that strong performance continue?
Accenture will report first quarter fiscal 2022 earnings results before of the opening bell Thursday. A leading specialist in the IT consulting and outsourcing space, Accenture’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. Its business has benefited immensely from the rapid growing demand not only for IT services, but also from increased cloud adoption and digital transitions.
However, the prospect of reduced discretionary IT spending remains a topic some analysts continue to question. While there is some evidence to suggests spending has improved, there’s also the concern a massive pull-forward has already occurred. For Accenture, which has announced the formation of Accenture Cloud First, spending some $3 billion over three years, the company will rely on IT spending to further its growth initiatives which aims to help clients across all industries rapidly become “cloud first” businesses and accelerate their digital transformation.
Meanwhile, Accenture stock has outperformed the Technology Select Sector SPDR ETF (XLK) the S&P 500 index over the past six months and year to date. The question is, with the stock already up some 50% in twelve months and trading at a 52-week high, can Accenture still be relied upon to deliver in 2022 in a meaningful way? Accenture, which provides consulting and outsourcing services for companies, will have to convince the Street that not only can it sustain its current growth rate, but that growth rate can accelerate profitably. The company’s guidance on Thursday will answer that question.
For the quarter that ended November, Wall Street expects Accenture to earn $2.63 per share on revenue of $14.16 billion. This compares to the year-ago quarter when earnings came to $2.17 per share on revenue of $11.76 billion. For the full year, ending August 2022, earnings are projected to be $8.94 per share, up 14.6% from $7.80 a year ago, while full-year revenue of $50.53 billion will rise 12.7% year over year.
Beyond its consulting projects, Accenture also relies heavily on its other segments, which includes accounting, procurement 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. How much demand can these areas generate in the quarters ahead, given the current uncertainty surrounding the economy and the likelihood of reduced IT spending?
In the fourth quarter, Accenture’s revenue rose 24% year over year $13.42 billion, but missed consensus estimates by $175K. New bookings, a closely-watched metric which measures the strength of future revenue rose 7% year over year to $15 billion, but missed the consensus of $15.62 billion. However, Q4 operating cash flow topped Street estimated, coming at $2.44 billion, ahead of the $2.4 billion estimate. This underscores the strength of Accentures operation.
Accenture's management, which raised guidance and has done so in four consecutive quarters, continues to execute on their stated objectives, finding ways to leverage the digitalization trend and increased company’s competitive scale. On Thursday investors will want to see Accenture improve on these metrics. 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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