By:
Alex Penkwitz, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary:
• Accenture Plc (NYSE: ACN) is one of the world’s leading professional
services companies engaging in the provision of management consulting,
technology, and outsourcing activities. ACN serves clients in a variety of
industries in three geographical regions: North America (45% of 2018 revenue),
Europe (36%), and Growth Markets (19%) such as Asia Pacific, Latin America,
Africa and the Middle East. Accenture Plc was founded in 1989 and is
headquartered in Dublin, Ireland.
• ACN reported very
strong FY2018 numbers. Net revenues grew by 10.5% in local currency and roughly
80% of overall growth was from strong organic growth of 8%.
• ACN just announced a
semi-annual cash dividend of $1.46 per share, a 10% increase from their
previous dividend.
• ACN had their second
highest bookings on record, reported as $10.8 billion for Q4-18.
• ACN has shifted their
core business to the “New” digital, cloud, and security related services. The
“New” accounted for 60% of their total revenue in FY2018.
Key
points:
Accenture’s strong results for FY2018 demonstrates
that they continue to execute their profitable growth strategy of
differentiation and competitiveness very well. Their strong revenue growth
displays that there is an increasing demand for their services.
ACN recently announced
that they will be increasing their semi-annual dividend $1.46. This represents
a 10% increase from the previous semi-annual dividend that was declared in
March. This newly declared dividend will be paid on November 15, 2018. Taking
effect in Q1-20, ACN will move from a semi-annual dividend payment schedule to
a quarterly dividend payment schedule.
Accenture posted their second
highest bookings on record in Q4-18, only behind their numbers in Q3-18. In
addition, Consulting bookings were $6.1 billion, which also represented an
all-time high.
ACN has begun to shift
the core of their business to “New” offerings such as digital, cloud, and
security related services. With the technological tilt that the world is seeing
now, it has proven to be a good strategy for Accenture. The New services have
delivered double-digit growth and is a key catalyst in order for ACN to
differentiate themselves from competitors. In FY2018, the company saw 60% of
their total revenue come from New services.
What
has the stock done lately?
Technology stocks got hit
hard in the recent past and ACN’s price has seen these fluctuations. From early
August to early October, Accenture saw a 10% increase, starting at $159.09 on
August 1st and ending at $174.82 on October 3rd. This is followed by
an immediate decline of 13.8% until October 29th where the stock
began to recover again. I think that as the technology industry stabilizes, the
stock will continue to rise as ACN begins to take more market share from their
shift towards their new business core.
Past
Year Performance:
ACN has increased 12.58% in value over the
past year. As I mentioned in the above section, the stock saw extreme declines
during the month of October in 2018. The overall increase in value is due to
the confidence investors have in the growth that ACN will continue to have in
their New services. Look for Accenture’s stock to stabilize soon and get back
to its constant growth that was displayed in early August and November.
Source:
FactSet
My
Takeaway:
When this stock was first
pitched, it was currently at $156.84 and the target P/E multiple was set at 24.0x
which resulted in a price target of $201.03. That price target seems achievable
in the long run with the continuation of the growth that Accenture Plc has
shown in the past. I expect to see ACN bounce back from their October downturn
to get back on track to achieve this price target.
Sources:
Factset
Accenture
Plc. (2018). Q4 2018 10-K. Retrieved from Factset online database.
Accenture
Plc. (2018). Q4 Earnings Call Transcript. Retrieved from FactSet online
database.
