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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 10.3% and a Growth Score of A.

In a year’s time, the stock has gained 23.9%, significantly outperforming the S&P 500’s 15.6% rally.

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, courtesy of acquisitions and partnerships.

Strong Worldwide IT Spending Expected

The latest forecast for worldwide IT spending by Gartner raised optimism about Accenture’s near-term performance. According to the research firm, worldwide IT spending will reach $3.7 trillion in 2018, representing a 6.2% increase from the last year. According to John-David Lovelock, research vice president at Gartner, "Although global IT spending is forecast to grow 6.2 percent this year, the declining U.S. dollar has caused currency tailwinds, which are the main reason for this strong growth." This encourages us about the company’s near-term prospects.

Accenture PLC Revenue (TTM)

Enhancing Cloud Capabilities

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 grow 21.4% in 2018 to $186.4 billion, up from $153.5 billion in 2017.

International Data Corporation (IDC) forecasted spending on public cloud services and infrastructure to witness a compounded annual growth rate (CAGR) of 21% during the 2016-2021 period. Therefore, considering the increasing 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 HO Communication, 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.

Accenture Interactive is a well-integrated platform enabling CMOs to devise marketing strategies and derive higher return on investment from it. Considering the growing need for digital marketing, we expect the company’s investment in digital and marketing capabilities to boost its long-term growth. This will also help Accenture in effectively competing with other digital marketing service providers such as IBM, Dell and Deloitte.

Zacks Rank & Key Picks

Accenture has a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader Business Services sector include Genpact (G - Free Report) , Automatic Data Processing (ADP - Free Report) and Paychex, Inc. (PAYX - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term expected EPS (three to five years) growth rate for Genpact, Automatic Data Processing and Paychex is 10%, 11.3% and 8.2%, respectively.

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