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Accenture Banks on Buyouts & Cloud Strength, Competition Rife
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Shares of Accenture plc (ACN - Free Report) have gained 37.7% over the past year, outperforming the 28.5% rally of the industry it belongs to.
The company recently reported better-than-expected third-quarter fiscal 2018 results. Non-GAAP earnings (excluding the effect of US tax law changes) came in at $1.79 per share, outpacing the Zacks Consensus Estimate of $1.71. Earnings also increased from $1.52 per share in the year-ago quarter.
Accenture’s net revenues increased 16% year over year to $10.3 billion and surpassed the Zacks Consensus Estimate of $10 billion. In local currency terms, revenues grew 11% on a year-over-year basis.
The company has an impressive earnings surprise history. It surpassed estimates in each of the trailing four quarters, with an average positive surprise of 4.6%. For the fiscal fourth quarter, the consensus estimate moved down 2.5% over the past 30 days.
Acquisitions a Key Catalyst
In fiscal 2017, Accenture closed 37 acquisitions worth $1.7 billion. So far this year, the company has either closed or has been in the process of acquiring seven businesses. In fact, it has invested approximately $3.4 billion in acquiring nearly 70 companies or start-ups over the last three fiscals.
Of late, Accenture completed acquisitions of Certus Solutions — one of the UK’s top Oracle Cloud implementation service providers — and New York-based digital agency, Meredith Xcelerated Marketing. The Certus acquisition is aimed at reinforcing Accenture’s capabilities in delivering digital transformation on Oracle Cloud. The Meredith buyout is expected to assist the company in creative content strategy, digital marketing and boost its marketing services by enhancing its data and content offerings.
Acquisitions have enabled Accenture to enter new markets, diversify and broaden its product portfolio, and maintain its leading position. Going ahead, such buyouts should continue contributing significantly to the company’s revenue stream.
Accenture’s strategy of enhancing its cloud capabilities through acquisitions and partnerships is a step in the right direction. This is evident from the recent forecast by several independent research firms. According to a research firm, Gartner, the worldwide public cloud revenues are likely to increase 21.4% in 2018 to $186.4 billion, up from $153.5 billion in 2017.
For fiscal 2018, International Data Corporation (“IDC”) forecasted spending on public cloud services and infrastructure to increase 23.2% year over year to $160 billion. Per the research firm, the market will witness a compounded annual growth rate (CAGR) of 21.9% during the 2016-2021 period, with public cloud services spending reaching $277 billion in 2021.
Therefore, considering the growing need for cloud-based applications and software, we expect Accenture’s investments in this space to propel long-term growth.
Strengthening Digital Marketing Capabilities
Accenture has strengthened its digital marketing capabilities through some significant acquisitions, including Meredith Xcelerated Marketing, Reactive Media, Acquity Group Ltd., dgroup and OCTO Technology.
Accenture Interactive is a well-integrated platform, enabling CMOs to devise marketing strategies and derive higher ROI (return on investment) from it. Considering the growing need for digital marketing, we expect Accenture’s investment in digital and marketing capabilities to boost its long-term growth. This will also facilitate the company in effectively competing with other digital marketing service providers such as IBM, Deloitte and Dell.
Higher talent costs due to a competitive talent market coupled with Trump’s stringent policies on immigration are hurting consulting services providers like Accenture. The industry is labor intensive and heavily dependent on foreign talent. Moreover, while advancement in automation and AI offer massive opportunity to the industry, these technologies enable clients to comprehend and integrate new methods to improve performance, thereby creating uncertainty for consulting services firms.
Increasing Rivalry and Integration Risks
Although acquisitions improve revenue opportunities along with business mix and profitability, it adds to integration risks as well. Moreover, frequent acquisitions are a distraction for management, which might impact organic growth moving ahead.
Further, competition from companies like Genpact (G - Free Report) , Cognizant (CTSH - Free Report) and Infosys (INFY - Free Report) is a mounting pressure. In fact, competition is particularly tough in the case of resurgent regions like Europe, since all the major players are fighting for business. This naturally increases pricing pressures.
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Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
Image: Bigstock
Accenture Banks on Buyouts & Cloud Strength, Competition Rife
Shares of Accenture plc (ACN - Free Report) have gained 37.7% over the past year, outperforming the 28.5% rally of the industry it belongs to.
The company recently reported better-than-expected third-quarter fiscal 2018 results. Non-GAAP earnings (excluding the effect of US tax law changes) came in at $1.79 per share, outpacing the Zacks Consensus Estimate of $1.71. Earnings also increased from $1.52 per share in the year-ago quarter.
Accenture’s net revenues increased 16% year over year to $10.3 billion and surpassed the Zacks Consensus Estimate of $10 billion. In local currency terms, revenues grew 11% on a year-over-year basis.
The company has an impressive earnings surprise history. It surpassed estimates in each of the trailing four quarters, with an average positive surprise of 4.6%. For the fiscal fourth quarter, the consensus estimate moved down 2.5% over the past 30 days.
Acquisitions a Key Catalyst
In fiscal 2017, Accenture closed 37 acquisitions worth $1.7 billion. So far this year, the company has either closed or has been in the process of acquiring seven businesses. In fact, it has invested approximately $3.4 billion in acquiring nearly 70 companies or start-ups over the last three fiscals.
Of late, Accenture completed acquisitions of Certus Solutions — one of the UK’s top Oracle Cloud implementation service providers — and New York-based digital agency, Meredith Xcelerated Marketing. The Certus acquisition is aimed at reinforcing Accenture’s capabilities in delivering digital transformation on Oracle Cloud. The Meredith buyout is expected to assist the company in creative content strategy, digital marketing and boost its marketing services by enhancing its data and content offerings.
Acquisitions have enabled Accenture to enter new markets, diversify and broaden its product portfolio, and maintain its leading position. Going ahead, such buyouts should continue contributing significantly to the company’s revenue stream.
Accenture PLC Revenue (TTM)
Accenture PLC Revenue (TTM) | Accenture PLC Quote
Well-Positioned to Leverage on Cloud Growth
Accenture’s strategy of enhancing its cloud capabilities through acquisitions and partnerships is a step in the right direction. This is evident from the recent forecast by several independent research firms. According to a research firm, Gartner, the worldwide public cloud revenues are likely to increase 21.4% in 2018 to $186.4 billion, up from $153.5 billion in 2017.
For fiscal 2018, International Data Corporation (“IDC”) forecasted spending on public cloud services and infrastructure to increase 23.2% year over year to $160 billion. Per the research firm, the market will witness a compounded annual growth rate (CAGR) of 21.9% during the 2016-2021 period, with public cloud services spending reaching $277 billion in 2021.
Therefore, considering the growing need for cloud-based applications and software, we expect Accenture’s investments in this space to propel long-term growth.
Strengthening Digital Marketing Capabilities
Accenture has strengthened its digital marketing capabilities through some significant acquisitions, including Meredith Xcelerated Marketing, Reactive Media, Acquity Group Ltd., dgroup and OCTO Technology.
Accenture Interactive is a well-integrated platform, enabling CMOs to devise marketing strategies and derive higher ROI (return on investment) from it. Considering the growing need for digital marketing, we expect Accenture’s investment in digital and marketing capabilities to boost its long-term growth. This will also facilitate the company in effectively competing with other digital marketing service providers such as IBM, Deloitte and Dell.
Competitive Talent Market & Trump’s Stringent Policies
Higher talent costs due to a competitive talent market coupled with Trump’s stringent policies on immigration are hurting consulting services providers like Accenture. The industry is labor intensive and heavily dependent on foreign talent. Moreover, while advancement in automation and AI offer massive opportunity to the industry, these technologies enable clients to comprehend and integrate new methods to improve performance, thereby creating uncertainty for consulting services firms.
Increasing Rivalry and Integration Risks
Although acquisitions improve revenue opportunities along with business mix and profitability, it adds to integration risks as well. Moreover, frequent acquisitions are a distraction for management, which might impact organic growth moving ahead.
Further, competition from companies like Genpact (G - Free Report) , Cognizant (CTSH - Free Report) and Infosys (INFY - Free Report) is a mounting pressure. In fact, competition is particularly tough in the case of resurgent regions like Europe, since all the major players are fighting for business. This naturally increases pricing pressures.
Accenture currently has a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>