Nine analysts have increased their earnings estimates for this consulting firm in the last 30 days.
Accenture plc (ACN)
From Argus Weekly Staff Report
BUY-rated Accenture plc (ACN) has appointed Julie Sweet as its chief executive officer and named interim CEO David Rowland as its executive chairman. Current non-executive chairman Marge Magner will resume her role as lead independent director. All changes are effective 9/1/19. Julie Sweet is currently head of Accenture’s North American operations. North America is Accenture’s largest regional market, generating $18 billion in fiscal 2018 revenue while serving more than 70% of Fortune 500 companies. In addition to running North America, incoming CEO Sweet has been part of Accenture’s senior leadership team for more than a decade.
We expect the CEO transition to be a non-event at well-run Accenture. Despite slowing global growth and worsening trade headwinds, Accenture grew fiscal 3Q19 (calendar 1Q19) revenue by 4% year-over-year on a reported basis and 8% in local currency. Although fiscal 3Q19 bookings were down sequentially and year-over-year, the overall bookings trend is solid.
Accenture continues to generate strong annual growth in sales and profits as it helps customers in key transitions, including digital, cloud and security. Overall, we regard Accenture as well positioned for future market share gains, top-line growth, and margin expansion.
For fiscal 3Q19, Accenture reported revenue of $11.10 billion, which was up 8% year-over-year on a reported basis and 4% in local currency. Revenue was at the top of management’s $10.80-$11.10 billion guidance range, and above the $11.04 billion consensus call. The GAAP operating margin of 15.5% for 3Q19 was the best of the year, widening from 13.3% in 2Q19 and 14.3% a year earlier. Accenture earned $1.93 per diluted share in 3Q19, which was up 20% year-over-year on a GAAP basis and up by 8% from year-earlier tax-impacted non-GAAP EPS of $1.79. GAAP EPS topped the $1.89 consensus estimate.
For 4Q19, Accenture is guiding for revenue of $10.85-$11.15 billion, which would be up about 5%-8% in local currency. Foreign exchange is expected to be a 2% headwind in 4Q19, implying GAAP top-line growth of 3% -6%. For all of fiscal 2019, Accenture continues to anticipate a full-year currency headwind of 3%. Accenture guided for revenue growth 8%-9% in local currency. Top-line guidance would imply full-year GAAP revenue growth of 5%-6%, up from earlier GAAP growth guidance of 3.5%-5.5%.
Management also refined its operating margin guidance for FY19 to 14.6%, from a range of 14.5%-14.7%. Finally, Accenture raised its fiscal 2019 earnings guidance to $7.28-$7.35 per diluted share, from $7.18-$7.32 (and, before that, from $7.01-$7.25).
Our fiscal 2019 GAAP earnings projection for Accenture is $7.34 per diluted share; our FY19 projection implies high mid-single-digit growth. Our fiscal 2020 GAAP projection is
$8.01 per diluted share. Our long-term annualized EPS growth rate forecast for Accenture is 10%.
ACN shares trade at 26.5-times our FY19 GAAP EPS estimate and at 24.3-times our FY20 estimate. We believe that Accenture warrants a premium relative P/E valuation in the 1.6- to 1.65-times range, based on rising revenue and new orders, strong cash-growth trends, market share gains, increasing profitability, and success in transitioning customers to the New.
Accenture trades at shrinking premiums to peers on P/E and price/book, though at a discount on price/sales. On all measures of historical comparable valuation, we calculate a value in the high $150s, below current levels but in a rising trend. Our more forward-looking discounted free cash flow analysis points to a value in the $250s, in a rising trend. Reflecting margin expansion and strengthening cash flow generation, our calculated blended value for Accenture is in the $220s, in a rising trend and above current prices.
Appreciation to our 12-month target price of $220 (raised from $200 implies a risk-adjusted total return, including the current yield, in excess of our forecast for S&P 500 capital appreciation in the coming year. On that basis, we are reiterating our BUY rating.
Jim Kelleher, CFA, Argus Weekly Staff Report, www.argusresearch.com, 212-425-7500, July 17, 2019