Accenture plc (ACN) Buy or Sell Stock Guide
The analysis below may be helpful to you if you have any of the following questions about ACN stock:
- Is ACN a buy or a sell?
- Should I sell or hold ACN stock today?
- Is ACN a good buy / a good investment?
- What are ACN analyst opinions, recommendations, ratings?
Here are ACN stock buy reasons/signals:
1. Accenture works with the globe’s largest and most progressive multinational corporations, which allows it to gain early insight into the most necessary challenges facing businesses and keeps it in a market-leading position.
2. The company produces a substantial amount of free cash and we expect healthy shareholder distributions for the foreseeable future.
3. Cloud, mobility, and analytics are expected to drive enterprise IT spending priorities in the short to mid-term.
4. The latest forecast for worldwide IT spending by Gartner gave some optimism about Accenture’s near-term performance. The research firm expects worldwide IT spending to grow 4.5% to $3.7 trillion in 2018. According to John-David Lovelock, research vice president at Gartner, there are 10 markets which is driving digital transformation thereby boosting overall IT spending.
5. Accenture has been steadily gaining traction in its outsourcing business. The success is primarily attributed to the increase in demand for technology that can improve operating efficiencies and save costs. In fiscal 2016, Accenture’s outsourcing revenues increased 6% on a local currency basis.
6. Acquisitions have been one of the key growth strategies for Accenture. In fiscal 2017, the company closed 37 acquisition deals of worth $1.7 billion. In fiscal 2018 so far, the company has either closed or in process of acquiring five businesses.
7. Accenture’s strategy of enhancing its cloud capabilities through acquisitions and partnerships is a step in the right direction, as evident from the recent forecast provided by several independent research firms. The research firm, Gartner predicts that the public cloud services market will witness a compounded annual growth rate (CAGR) of 16.3% during the 2016–2019 period, reaching $383.4 billion by 2020 end. Exponential growth in the amount of data, complexity of data formats and the need to scale resources at regular intervals compelled several companies to turn to cloud-computing vendors.
8. Accenture has strengthened its digital marketing capabilities through some significant acquisitions including Reactive Media, Acquity Group Ltd., dgroup and OCTO Technology. It should be noted that competent marketing is the key to success for every organization. Marketing and digital executives of a company are responsible for developing digital marketing campaigns, marketing contents, e-Commerce and marketing operations.
9. Since 2014, Accenture has been aggressively trying to strengthen its position as a leading provider of Salesforce capabilities. To this end, the company has made several acquisitions including the likes Cloud Sherpas, CRMWaypoint and Tquila UK. Notably, the company is already a global leader in the Salesforce implementation service space, with currently over 3,700 skilled consultants.
10. Accenture’s partnership strategies have enabled it to enter newer markets, diversify and broaden the product portfolio and maintain a leading position. We believe that the company’s regular partnership agreements with the likes of Amazon Web Services, Google, Microsoft, Oracle, Salesforce and SAP, will significantly contribute to the revenue stream. In August 2017, Apple and Accenture have joined hands to create a mixed team of designers, programmers, and other Apple experts, within Accenture Digital Studios units in select locations around the world.
11. Accenture has a strong balance sheet. As of February 28, 2018, the company had cash and cash equivalents of approximately $3.6 billion and long-term debt of just $26 million. This enables the company to pursue strategic acquisitions and invest in growth initiatives.
12. Accenture’s strong operating cash flow has helped it to return cash through regular quarterly dividend payment and share repurchases. During fiscal 2016, the company paid a total cash dividend of $1.44 billion and repurchased $2.6 billion worth of its common stock. In line with its policy of boosting shareholder value, Accenture repurchased 22.1 million shares for $2.65 billion and paid $1.57 billion as dividend during the fiscal 2017.
13. ACN quarterly revenue growth was 15.20%, higher than the industry and sector average revenue growth (3.46% and 5.77%, respectively).
14. ACN profitability is improving. The YoY profit margin change was 9.37pp.
15. ACN forward dividend yield is 1.75%, higher than the industry (0.41%) and sector (0.30%) forward dividend yields.
16. ACN average analyst rating is Buy.
Here are ACN stock sell reasons/signals:
1. With over half of group revenues generated offshore, Accenture is exposed to meaningful foreign exchange rate risk.
2. The IT services industry remains highly competitive, so Accenture must continually offer its clients the best value while retaining its most important people.
3. Referenceability is a crucial part of Accenture’s success. Poor client outcomes may lead to reputation damage and fewer bookings.
4. Accenture’s February 2017 announcement of creating 15K new jobs by 2020 and investment plan of $1.4 billion for employee training and opening of 10 innovation centers across the U.S. cities may dent its bottom-line results in our opinion. The company is believed to be preparing itself for a more protectionist U.S. technology visa program under the newly elected president, Donald Trump. It should be noted that out of over 425,000 of its total workforce, more than 140,000 are in India, which provides it a cost advantage.
5. Accenture derives approximately 52% of total revenue from outside the U.S. in the form of key currencies such as pound, Euro, Australian Dollar and Yen. Thus, currency fluctuations can impact overall profitability of the company. Furthermore, the company has hinted that unfavorable foreign currency exchange rates may negatively impact its upcoming quarterly results.
6. Accenture’s market share and revenues necessarily depend on client relationships and the number of contracts it secures. This, along with the limited scope for product differentiation, makes the renegotiation of large contracts extremely important. As a result, competition from strong companies like Genpact Limited, Cognizant Technology Solutions and Infosys is a constant pressure.
7. Accenture continues to acquire a large number of companies. While this improves revenue opportunities, business mix and profitability, it also adds to integration risks. Moreover, frequent acquisitions are a distraction for management, which could impact organic growth, going forward.
8. ACN stock price ($158.89) is close to the 52-week high ($164.17). Perhaps now is a good time to sell?
9. ACN forward P/E ratio is 21.71, and it’s high compared to its industry peers’ P/E ratios.
10. ACN Price/Book ratio is 10.14, and it’s high compared to its industry peers’ P/B ratios.
11. ACN short interest (days to cover the shorts) ratio is 5.47. The stock garners more short interest than the average industry, sector or S&P 500 stock.
What are your thoughts on ACN?
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