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Why Hold Strategy is Apt for Accenture (ACN) Stock Right Now

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A prudent investment decision involves buying stocks that have solid prospects and selling those that carry risks. At times, it is rational to hold certain stocks that have enough potential but are weighed down by tough market conditions.

Here we discuss about Accenture plc (ACN - Free Report) , a stock with an expected long-term earnings per share growth rate of 10% and a Growth Score of B.

Last year, the company has outperformed the industry it belongs to. While the stock has rallied 29.7%, the industry gained 17.5%.

In fact, we believe Accenture has the potential to exceed expectations moving ahead. This optimism surrounding the stock is backed by the company’s strong cloud and digital marketing capacities owing to acquisitions and partnerships.

Let’s delve deep to unearth the reasons behind the company’s impressive price performance.

Acquisition: A Key Growth Strategy

In fiscal 2017, Accenture closed 37 acquisition deals worth $1.7 billion. So far this year, the company has either closed or is in the process of acquiring five businesses. Additionally, Accenture has invested approximately $3.4 billion in acquiring nearly 70 companies or start-ups over the last three fiscals. The company also intends to invest close to $1 billion on acquiring assets in fiscal 2018.

In fact, we believe Accenture’s strategy of enhancing its cloud capabilities through acquisitions 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 public cloud services market is likely to witness a compounded annual growth rate (CAGR) of 16.3% during the 2016-2019 period, reaching $383.4 billion by 2020-end. 

Moreover, Accenture has strengthened its digital marketing capabilities through some significant acquisitions, including Reactive Media, Acquity Group Ltd., dgroup and OCTO Technology. Again, the company inked a deal to acquire New York-based digital agency, Meredith Xcelerated Marketing, last month.

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.

Further, 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. In fact, it is already a global leader in the Salesforce implementation service space, with currently over 3,700 skilled consultants.

Accenture PLC Revenue (TTM)

Partnership Strategies Enabling Entry to New Markets

We believe that Accenture’s regular partnerships with the likes of Amazon (AMZN - Free Report) Web Services, Google (GOOGL - Free Report) , Microsoft, Oracle, Salesforce (CRM - Free Report) and SAP are helping the company to enter new markets.

In August 2017, Apple and Accenture joined hands to create a mixed team of designers, programmers and other Apple experts, within Accenture Digital Studios units in select locations across the globe. The team focuses on developing tools and services for building iOS apps in accordance to the requirements of Accenture’s clients across different industries.

We opine that, the partnership should help Accenture in enhancing its digital transformation capabilities and bring in additional revenues. Apart from this, the agreement is expected to facilitate the company in effectively competing with other consulting companies such as IBM, Dell and Deloitte.

Regular Quarterly Dividend Payment & Share Repurchases

Accenture’s strong operating cash flow has helped it to return cash through regular quarterly dividend payment and share repurchases. In fiscal 2017, the company paid a total dividend of $1.57 billion and repurchased $2.65 billion worth of its common stock.

In first two quarters of fiscal 2018, the company repurchased share worth $1.37 billion and paid dividend of $854 million. Share repurchases and dividend payments are a good way of returning cash to investors while boosting the company’s earnings.

Bottom Line

Robust growth strategies in the forms of acquisitions and partnerships, strong prospects in cloud computing and digital marketing arenas along with a healthy track record of returning cash to shareholders lead us to have a positive outlook on the stock.

Accenture has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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