Most company chiefs know the future is going to be a digitally driven one. They just don't know how to make it happen. They're so lost, in fact, that many of them are ready to hire outsiders just to help them map out where they need to go next.
That's the general consensus from technology advisory firms Gartner and IDC, both of which recently fleshed out what's been gnawing at corporate executives, and how they're going to address their concerns. Specifically, Gartner determined that during the third quarter, misconceptions about digitalization was viewed as the biggest risk among business leaders, while IDC predicts spending on digital transformation will soar to an annual pace of $2.3 trillion by 2023.
Those organizations are going to lean on outfits like Accenture (NYSE: ACN) to take them where they need to be.
Digitalization is coming, ready or not
It's not something the average consumer or investor sees or hears about on a regular basis. But, it takes a massive amount of information to process your bill payments, stock your local grocer's shelves, power your mobile phone, and even transport you from point A to point B. What used to be done manually or using simple analog tools is increasingly being managed digitally, which is far more efficient.
Problem: It's not completely clear to many organizations how to make that happen.
Image Source: Getty Images.
"Our data suggests that executives lack confidence in transformational business model changes, even as many are already under way," explains Gartner's Matt Shinkman of the organization's survey of corporations' top perceived risks right now. For a second quarter, "lagging digitalization" was the second-biggest worry. Meanwhile, "digitalization misconceptions" jumped from its fourth-place spot in Q2 to the top slot for Q3.
The theme largely mirrors a recent update from IDC suggesting that global spending on digital transformation would grow to more than half of all technology investments by 2023. A total of $7.4 trillion is expected to be spent on digital transformation between now and then.
Pick of the litter
That undertow, while difficult for some to see, represents a significant growth opportunity for the right sort of companies, none of which are exactly household names. One of the more compelling technology stocks in this sliver of the sector is Cognizant Technology Solutions, and my colleague Tim Beyers made a good case for EPAM Systems earlier this year.
The top prospect in the mostly overlooked arena, however, may also be one of the more familiar names in the business. That's Accenture.
Dublin-based Accenture brings a variety of services to the table, but broadly speaking, the company helps other companies figure out how to get the most out of their assets, and digital assets in particular. It led the National Bank of Canada, for example, through the implementation of a new trading platform.
It's been a great business to be in. Or, perhaps it would be more accurate to say Accenture has been great in this business. Not one quarter since the beginning of 2011 has Accenture failed to produce revenue growth, and while the same can't quite be said of per-share earnings, the bottom-line trend has been almost as impressive and hasn't fallen short of an earnings estimate since the beginning of 2016. Analysts are modeling the same sort of slow, steady sales and earnings growth through 2022 as well under new CEO Julie Sweet.
Data source: Thomson Reuters/Refinitiv. Chart by author.
The key to Accenture's success has to at least be partially chalked up to smart acquisitions that are quickly accretive. They number in the hundreds since the organization began its buying spree years ago, but with about a dozen deals done so far this year, Accenture isn't stopping. It doesn't need to. It's gotten very good at bolting on new profit centers and integrating them with minimal disruption. Even factoring in all the extraordinary expenses that are incurred when purchasing existing operations, Accenture is in the habit of growing its bottom line.
Data source: Thomson Reuters/Refinitiv. Chart by author.
The other key to Accenture's success -- and perhaps the biggest -- is simply that the company has a legacy and habit of success that keeps customers coming back. As Morningstar analyst Brian Colello notes, "A critical component of Accenture's success has been its ability to attract and foster close and long-lasting business relationships." Colello goes on to point out "...99 of the company's top 100 clients (by revenue) have been with the firm for at least five years, and 97 have been with the firm for at least 10 years."
The sudden swell of demand for digitalization may make the outfit's services even stickier.
The Foolish takeaway
It's just an idea...one of a handful of consulting and technology advisories. EPAM and Cognizant are prospects as well. Even Gartner, which pointed out the digitalization opportunity, could benefit from the growing need for technological help.
Accenture's broad-based capabilities make it an accessible, reliable holding for investment portfolios, though, letting investors into an industry they rarely think about with a pick that's rarely mentioned. It's not cheap -- priced at more than 21 times next year's projected profits -- but this is a quality name worth paying up for.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Cognizant Technology Solutions and EPAM Systems. The Motley Fool recommends Accenture and Gartner and recommends the following options: short January 2020 $155 calls on Accenture and long January 2021 $110 calls on Accenture. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.