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Here's Why You Should Retain Accenture in Your Portfolio

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Accenture plc ACN remains poised for growth, backed by strong consulting as well as outsourcing businesses.

The company’s long-term (five years) earnings growth is pegged at 10.3%. Earnings for fiscal 2020 and 2021 are expected to grow 6.3% and 9.5%, respectively.

The company’s shares have gained 15.4% over the past year, outperforming the 7.6% growth of the Zacks S&P 500 composite.


Factors Aiding the Stock

Accenture has been steadily gaining traction in its consulting as well as outsourcing businesses backed by high demand for services that can improve operating efficiencies and save costs. On the consulting front, the company experiences strong demand for digital, cloud- and security-related services. On the outsourcing front, it continues to see strong demand to assist clients with the operation and maintenance of digital-related services and cloud enablement.

In the first quarter of fiscal 2020, Accenture’s consulting as well as outsourcing revenues increased 7% year over year.

Acquisitions have been one of the key growth strategies for Accenture. They have enabled the company to enter new markets, diversify and broaden its product portfolio, and maintain its leading position.

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 Gartner, the worldwide public cloud revenues are likely to grow 17% in 2020 to $266.4 billion, up from $227.8 billion in 2019. Per International Data Corporation (IDC), global spending on public cloud services and infrastructure market will witness a compounded annual growth rate (CAGR) of 22.3% during the 2019-2023 period.

Therefore, considering the growing need for cloud-based applications and software, we expect Accenture’s investments in this space to propel long-term growth.

Some Hurdles to Counter

Higher talent costs due to a competitive talent market and 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.

Zacks Rank & Stocks to Consider

Accenturecurrently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Business Services sector are S&P Global (SPGI - Free Report) , NV5 Global (NVEE - Free Report) and TransUnion TRU, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings (three to five years) growth rate for S&P Global, NV5 Global and TransUnion is estimated at 10%, 20% and 12.9%, respectively.

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