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Accenture Plc (ACN)

August 22, 2024

Compared to: Globant SA (GLOB) | Concentrix Corp. (CNXC) | Technology Select Sector SPDR Fund (XLK)

Our reasoning

Accenture's current valuation appears fair, balancing its strong market position, solid financial performance, and growth prospects against the risks of decelerating revenue growth and macroeconomic uncertainties. The company's investments in emerging technologies like GenAI and its strategic acquisitions provide potential upside, while its diversified service offerings and global presence offer resilience against downside risks.

Key takeaways
  • Accenture is a leading global professional services company with a strong financial position, characterized by high profitability, efficient operations, and a conservative capital structure.
  • The company's revenue growth is increasing but is decelerating, which could indicate a maturing market or potential challenges in securing new contracts.
  • Accenture's profitability is expected to continue to improve, driven by the company's focus on cost management and efficiency.
  • The company's strong free cash flow generation provides ample capacity for debt repayment, dividend growth, and future investments.
  • Accenture's significant investments in acquisitions could lead to integration challenges and potential write-offs.
  • The company's business optimization program, which includes streamlining operations and consolidating office space, could lead to potential job losses and impact employee morale.
  • The company's financial position is strong, with ample liquidity and low leverage.
  • Accenture's future growth is expected to be driven by continued investments in strategic acquisitions and organic growth initiatives.
  • The company's valuation is supported by its strong financial performance, growth opportunities, and efficient operations.
  • Accenture's stock price has generally outperformed the broader technology sector and its peers, with lower volatility and a lower risk profile.
  • The company's future outlook is positive, with management guidance and analyst estimates suggesting continued growth and profitability.
Fairly valued
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Evaluation summary

  1. Company Overview:

    • Accenture is a global professional services company that provides a wide range of consulting, technology, and outsourcing services to clients across various industries. The company's business model is based on providing expertise and solutions to help clients address their business challenges and achieve their strategic goals.
    • Accenture's services are organized into five segments: Strategy & Consulting, Technology, Operations, Industry X, and Song. The company's revenue is generated from a diverse range of clients across various industries, including communications, media, technology, financial services, healthcare, public sector, and more.
    • Accenture's target market is primarily large enterprises and government organizations seeking to leverage technology and digital transformation to improve their operations, enhance customer experiences, and drive growth.
    • For comparative analysis, we are using the Technology Select Sector SPDR Fund (XLK) as a benchmark and Concentrix Corp. (CNXC) and Globant SA (GLOB) as industry peers.

  2. Financial Performance:

    • Accenture has consistently demonstrated strong financial performance over the past few years, with revenue growth, expanding margins, and robust profitability.
    • Revenue has grown steadily, driven by strong demand for managed services, cloud, security, and data/AI solutions. However, revenue growth has decelerated in recent quarters, potentially indicating a maturing market or challenges in securing new contracts.
    • The company's profitability ratios, including gross profit margin, operating margin, and net profit margin, are significantly higher than the industry average, indicating strong performance and efficient operations.
    • Accenture's ROA, ROE, and ROIC are all significantly higher than the industry average, indicating efficient asset utilization and strong profitability.
    • Compared to its peers, Accenture has consistently outperformed both Concentrix Corp. (CNXC) and Globant SA (GLOB) in terms of revenue growth, profitability, and risk-adjusted returns.

  3. Operational Efficiency:

    • Accenture's balance sheet reflects a strong financial position with ample liquidity and low leverage. The company's working capital management is efficient, with a strong operating cash flow that provides ample liquidity for short-term obligations.
    • The company's cash flows from operations are increasing, indicating strong profitability and efficient working capital management.
    • Accenture generates strong free cash flow, providing ample capacity for debt repayment, dividend growth, and future investments.
    • The company's capital expenditures are aligned with its revenue and profit growth, suggesting efficient investment allocation.
    • Accenture's dividend and share repurchase program is sustainable, supported by its strong free cash flow generation.
    • Compared to its peers, Accenture has demonstrated higher operational efficiency, with lower debt levels, stronger cash flow generation, and more efficient working capital management.
    • Accenture's liquidity ratios, including the current ratio and quick ratio, are slightly below the industry average, indicating a moderate level of liquidity.
    • The company's debt-to-equity ratio and debt-to-EBITDA ratio are significantly lower than the industry average, indicating a strong financial position and low leverage.

  4. Growth Opportunities:

    • Accenture is actively pursuing growth opportunities through strategic acquisitions, organic investments in R&D and talent development, and expansion into new growth areas, such as GenAI.
    • The company has a strong track record of successful acquisitions, with a focus on expanding capabilities in high-growth areas and deepening industry/functional expertise.
    • Accenture's R&D pipeline is robust, with significant investments in patents and employee training/development to enhance its differentiation and competitiveness.
    • The company is expanding its geographic reach into attractive markets, such as Asia Pacific and Latin America, where it sees significant growth potential.
    • Accenture's current strategic focus areas include large-scale transformations and reinventions, leveraging its end-to-end services and deep industry expertise.
    • The company has made significant progress on previously announced initiatives, such as its business optimization program, which aims to streamline operations and improve efficiency.
    • Accenture's capital allocation strategies are aligned with its growth objectives, with a focus on investing in acquisitions, R&D, and talent development.
    • Management has a strong track record of executing strategic plans, as evidenced by the company's consistent financial performance and growth.

  5. Risks and Threats:

    • Accenture faces several risks and threats that could impact its financial performance, including:
      • Volatile, negative, or uncertain economic and political conditions that impact client businesses and spending.
      • Inability to adapt and expand services/solutions to address evolving technology and client needs.
      • Challenges in matching people and skills with client demand and retaining top talent.
      • Cybersecurity and data protection risks, including from security incidents or breaches.
      • Intense competition and potential loss of market share.
      • Reputational risks that could impact ability to attract/retain clients and employees.
      • Risks associated with acquisitions, joint ventures, and business partnerships.
      • Tax audits, investigations, and changes in tax laws that could affect the effective tax rate.
      • Foreign currency exchange rate fluctuations that could adversely impact financial results.
    • The company's business optimization program, which includes streamlining operations and consolidating office space, could lead to potential job losses and impact employee morale.
    • The company's significant investments in acquisitions could lead to integration challenges and potential write-offs.

  6. Valuation Analysis:

    • Accenture's valuation metrics, such as P/E ratio and EV/EBITDA, are generally in line with its peers and the broader technology sector.
    • The company's strong financial performance, growth opportunities, and efficient operations support its current valuation.
    • Potential catalysts for future valuation growth include continued revenue growth, margin expansion, and successful execution of strategic initiatives.

  7. Price Performance:

    • Accenture's stock price has generally outperformed the broader technology sector (XLK) over the past three years, with the exception of the 3-month period, where it underperformed.
    • The company's stock price has exhibited lower volatility than both XLK and its peers, suggesting a lower risk profile.
    • Accenture's beta value suggests that it is slightly less sensitive to market movements than XLK, but still more volatile than the overall market.

  8. Future Outlook:

    • Accenture's management guidance for fiscal 2024 suggests continued revenue growth and margin expansion, despite the uncertain macroeconomic environment and potential pricing pressures.
    • Analyst estimates for the company's future performance are generally positive, with consensus expectations for continued growth and profitability.

  9. Summary:

    • Accenture is a leading global professional services company with a strong financial position, characterized by high profitability, efficient operations, and a conservative capital structure.
    • The company's revenue growth is increasing but is decelerating, which could indicate a maturing market or potential challenges in securing new contracts.
    • Accenture's profitability is expected to continue to improve, driven by the company's focus on cost management and efficiency.
    • The company's strong free cash flow generation provides ample capacity for debt repayment, dividend growth, and future investments.
    • Accenture's significant investments in acquisitions could lead to integration challenges and potential write-offs.
    • The company's business optimization program, which includes streamlining operations and consolidating office space, could lead to potential job losses and impact employee morale.
    • The company's financial position is strong, with ample liquidity and low leverage.
    • Accenture's future growth is expected to be driven by continued investments in strategic acquisitions and organic growth initiatives.
    • The company's valuation is supported by its strong financial performance, growth opportunities, and efficient operations.
    • Accenture's stock price has generally outperformed the broader technology sector and its peers, with lower volatility and a lower risk profile.
    • The company's future outlook is positive, with management guidance and analyst estimates suggesting continued growth and profitability.
    • Overall, Accenture is a well-positioned company with a strong track record of financial performance, growth, and operational efficiency. However, investors should be aware of the risks and threats that could impact the company's future performance.
Peer fundamentals 
Fundamentals
Insights
  • Accenture is a leading global professional services company with a strong financial position, characterized by high profitability, efficient operations, and a conservative capital structure.
  • The company's revenue growth is increasing but is decelerating, which could indicate a maturing market or potential challenges in securing new contracts.
  • The company's profitability is expected to continue to improve, driven by the company's focus on cost management and efficiency.
  • The company's strong free cash flow generation provides ample capacity for debt repayment, dividend growth, and future investments.
  • The company's significant investments in acquisitions could lead to integration challenges and potential write-offs.
  • The company's business optimization program, which includes streamlining operations and consolidating office space, could lead to potential job losses and impact employee morale.
  • The company's financial position is strong, with ample liquidity and low leverage.
  • The company's future growth is expected to be driven by continued investments in strategic acquisitions and organic growth initiatives.
Analysis

  • Revenue - Revenue growth is increasing but is decelerating, which could indicate a maturing market or potential challenges in securing new contracts. - The company's revenue growth is driven by strong demand for managed services, cloud, security, and data/AI solutions. - The company's revenue growth is expected to continue but at a slower pace.

    • Profitability

      • The company's profitability ratios are significantly higher than the industry average, indicating strong performance and efficient operations.
      • The company's gross profit margin, operating margin, and net profit margin are all increasing, indicating strong profitability and efficient cost management.
      • The company's profitability is expected to continue to improve, driven by the company's focus on cost management and efficiency.

    • Liquidity

      • The company's current ratio and quick ratio are slightly below the industry average, indicating a moderate level of liquidity.
      • The company's strong operating cash flow provides ample liquidity for short-term obligations.

    • Solvency

      • The company's debt-to-equity ratio and debt-to-EBITDA ratio are significantly lower than the industry average, indicating a strong financial position and low leverage.
      • The company's strong free cash flow generation and low debt levels indicate a strong long-term solvency position.

    • Operational Efficiency

      • The company's return on assets, return on equity, and return on invested capital are all significantly higher than the industry average, indicating efficient asset utilization and strong profitability.
      • The company's ability to control operating expenses in relation to revenue growth is contributing to margin expansion.

    • Cash Flow Analysis

      • Cash flows from operations are increasing, indicating strong profitability and efficient working capital management.
      • The company's free cash flow generation is strong, providing ample capacity for debt repayment, dividend growth, and future investments.
      • The company's capital expenditures are aligned with its revenue and profit growth, suggesting efficient investment allocation.

    • Risk Factors

      • The company faces risks related to talent management, cybersecurity, legal/regulatory compliance, and foreign currency fluctuations that could impact its financial performance.
      • The company's business optimization program, which includes streamlining operations and consolidating office space, could lead to potential job losses and impact employee morale.
      • The company's significant investments in acquisitions could lead to integration challenges and potential write-offs.

    • Future Outlook

      • The company's financial position is strong, with ample liquidity and low leverage.
      • The company's future growth is expected to be driven by continued investments in strategic acquisitions and organic growth initiatives.
      • The company's profitability is expected to continue to improve, driven by the company's focus on cost management and efficiency.
Most recent earnings report
Financial statements 
All public filings
Comparative Analysis
Benchmarks (as of 2024-08-08)
Technology Select Sector SPDR Fund (XLK)
  • Performance Comparison:
    • ACN has significantly underperformed XLK over most of the periods analyzed, particularly in the longer-term periods. This suggests that ACN has struggled to keep pace with the broader technology sector.
    • ACN's performance has been inconsistent relative to XLK, with periods of outperformance interspersed with periods of significant underperformance. This suggests that ACN's performance may be more susceptible to market fluctuations.
  • Risk and Return Analysis:
    • ACN has provided lower annualized returns than XLK over all periods analyzed. This indicates that ACN has not been as profitable as the broader technology sector.
    • ACN has exhibited higher annualized volatility than XLK, suggesting that ACN is more sensitive to market fluctuations and carries a higher risk profile.
    • ACN has experienced a larger maximum drawdown than XLK, indicating that ACN's investors have faced greater potential losses during market downturns. This further supports the notion that ACN carries a higher risk profile.
  • Risk-Adjusted Performance:
    • XLK has consistently offered a better risk-adjusted return than ACN, as evidenced by its higher Sharpe ratio. This suggests that XLK has been more efficient at generating returns relative to its risk.
    • ACN's beta value suggests that it is slightly less sensitive to market movements than XLK, but still more volatile than the overall market. This indicates that ACN's performance may be more influenced by factors specific to the company rather than broader market trends.
  • Overall Assessment:
    • ACN has underperformed XLK in terms of both absolute and risk-adjusted returns. This suggests that ACN may not be the most attractive investment option for investors seeking exposure to the technology sector.
    • ACN's higher volatility and larger drawdowns indicate a higher risk profile compared to XLK. Investors seeking a more stable and less risky investment may prefer XLK.
    • While ACN's beta suggests a slightly lower sensitivity to market movements than XLK, its overall volatility and underperformance suggest that its performance may be more influenced by company-specific factors.
    • Investors considering ACN should carefully assess its risk profile and consider whether its potential for growth and profitability outweighs its higher volatility and underperformance relative to the broader technology sector.
Peers Price History(as of 2024-08-08)
Globant SA (GLOB)Concentrix Corp. (CNXC)
  • Performance Comparison:
    • Accenture Plc (ACN) has generally outperformed both Concentrix Corp. (CNXC) and Globant SA (GLOB) over the past three years, with the exception of the 3-month period, where it underperformed both peers. This suggests that ACN has been a more consistent performer than its peers.
  • Risk and Return Analysis:
    • Accenture Plc (ACN) has consistently provided higher annualized returns than both Concentrix Corp. (CNXC) and Globant SA (GLOB) over the past three years. This indicates that ACN has been a more profitable investment than its peers.
    • Accenture Plc (ACN) has exhibited lower annualized volatility than both Concentrix Corp. (CNXC) and Globant SA (GLOB) over the past three years. This suggests that ACN has been a less risky investment than its peers.
    • Accenture Plc (ACN) has experienced the smallest maximum drawdown of 39.69% on 03/15/2023, compared to 72.83% for Concentrix Corp. (CNXC) on 04/18/2024 and 61.33% for Globant SA (GLOB) on 05/09/2023. This further supports the notion that ACN has a lower risk profile than its peers.
  • Risk-Adjusted Performance:
    • Accenture Plc (ACN) has consistently offered a better risk-adjusted return than both Concentrix Corp. (CNXC) and Globant SA (GLOB) over the past three years, as evidenced by its higher Sharpe Ratio. This indicates that ACN has been a more efficient investment than its peers.
    • Accenture Plc (ACN) has a lower beta value than both Concentrix Corp. (CNXC) and Globant SA (GLOB), suggesting that it is less sensitive to market movements. This further supports the notion that ACN has a lower risk profile than its peers.
  • Overall Assessment:
    • Accenture Plc (ACN) has consistently outperformed its peers, Concentrix Corp. (CNXC) and Globant SA (GLOB), in terms of both absolute and risk-adjusted returns. This is supported by its higher annualized returns, lower annualized volatility, smaller maximum drawdown, and higher Sharpe Ratio. Additionally, ACN's lower beta value suggests a lower risk profile compared to its peers. These factors indicate that ACN has been a more profitable and less risky investment than its peers over the past three years.
    • The analysis highlights a significant trend of increasing volatility for all three companies, with Globant SA (GLOB) consistently exhibiting the highest volatility. This suggests that investors should be aware of the potential for increased risk in the IT Services sector.
Peers Fundamentals(as of 2024-05-31)
Globant SA (GLOB)Concentrix Corp. (CNXC)

  1. Market Position and Size:

    • Accenture Plc (ACN) is a dominant player in the Information Technology Services industry, with a market capitalization significantly larger than its peers, Concentrix Corp. (CNXC) and Globant SA (GLOB). ACN's market cap of 206,938.0 million is over 46 times larger than CNXC's market cap of 4,437.15 million and over 23 times larger than GLOB's market cap of 8,719.29 million. This size difference is reflected in ACN's significantly higher revenue, EBITDA, and net income compared to its peers.

  2. Profitability and Efficiency:

    • ACN exhibits strong profitability metrics, exceeding both peer and industry averages. Its Gross Profit Margin, EBITDA Margin, and Net Profit Margin are significantly higher than its peers and the industry average, suggesting efficient operations and strong pricing power. ACN also demonstrates superior efficiency in generating returns compared to its peers and industry averages, as evidenced by its strong ROA, ROE, ROTC, and ROIC, highlighting its efficient use of assets and capital.

  3. Financial Health and Stability:

    • ACN maintains a healthy liquidity position, although its solvency metrics indicate a moderate level of debt. Its Current Ratio and Quick Ratio suggest that ACN has sufficient short-term assets to cover its current liabilities. Its Total Debt to Total Equity Ratio and Debt / EBITDA ratio indicate a moderate level of debt relative to its equity and earnings, suggesting a relatively conservative approach to financing. Overall, ACN's financial health is strong, with a solid financial foundation and a conservative approach to financing.

  4. Valuation and Market Perception:

    • ACN is currently trading at a premium valuation compared to its peers and industry averages. Its EV/Sales, EV/EBITDA, P/E, Price to Book Ratio, and Price To Sales Ratio are higher than its peers, suggesting that the market is willing to pay a premium for ACN's strong growth prospects, profitability, and efficiency. However, it's important to note that ACN's valuation is still significantly lower than the industry average, indicating that the market may be pricing in some potential risks or uncertainties.

  5. Cash Flow and Capital Management:

    • ACN generates strong cash flows, exceeding its peers and industry norms. Its Net Operating Cash Flow, Total Capital Expenditure, and Free Cash Flow are significantly higher than its peers, considering their respective market caps. These strong cash flow metrics demonstrate ACN's ability to generate substantial cash from its operations and invest in its growth.

  6. Growth and Future Prospects:

    • ACN exhibits a mixed growth profile, with some metrics showing consistently higher growth than the peer group average, while others show consistently lower growth. ACN's 5-year CAGR for Sales/Revenue, in millions is lower than the peer group average, indicating slower revenue growth compared to its peers. However, ACN's 5-year CAGR for EBITDA is higher than the peer group average, suggesting stronger growth in profitability. ACN's year-over-year growth rates show significant fluctuations, particularly in Free Cash Flow and Free Cash Flow Margin, indicating potential volatility in its cash flow generation. Comparing ACN's 3-year and 5-year CAGR figures reveals that its growth has been more consistent in profitability metrics like EBITDA and Net Income, while its growth in revenue and assets has been more volatile. Based on these growth trends, ACN's competitive position appears to be mixed. While it shows superior growth in profitability metrics, its revenue growth has been slower than its peers. This suggests that ACN may be focusing on improving its margins and profitability, potentially at the expense of market share growth.

  7. Potential for Investment:

    • ACN presents a mixed investment proposition. Its strong profitability, efficiency, and cash flow generation capabilities, coupled with its dominant market position, make it an attractive investment. However, its slower revenue growth and decelerating profitability growth raise concerns about its future growth prospects. Investors should carefully consider these factors and assess whether ACN's current valuation reflects its potential risks and uncertainties.

  8. Key Risks and Considerations:

    • ACN's slower revenue growth and decelerating profitability growth raise concerns about its future growth prospects. Investors should carefully consider these factors and assess whether ACN's current valuation reflects its potential risks and uncertainties. Additionally, ACN's volatile cash flow generation, as evidenced by significant fluctuations in its year-over-year growth rates for Free Cash Flow and Free Cash Flow Margin, may indicate potential risks related to its cash flow management.

  9. Overall Assessment:

    • Accenture Plc (ACN) is a financially strong company with a dominant market position. Its profitability, efficiency, and cash flow generation capabilities are impressive. However, its slower revenue growth and decelerating profitability growth raise concerns about its future growth prospects. Investors should carefully consider these factors and assess whether ACN's current valuation reflects its potential risks and uncertainties.