In its recent quarterly earnings release, Accenture (ACN), a global technology and management consulting firm, reported that technology outsourcing is leading the growth for its overall outsourcing business. Though total outsourcing revenue declined by about 6% in the recent quarter, new outsourcing bookings of $3.1 billion suggests positive growth in the future, led by the company’s technology outsourcing business.
We have upgraded our Trefis price estimate for Accenture’s stock from $49 to $52 in part to reflect the improved outlook for outsourcing. Below we discuss the importance of technology outsourcing to Accenture’s stock and how greater demand for outsourcing services is likely to lead to growth in Accenture’s headcount.
Technology Outsourcing 21% of Accenture’s Stock
We estimate that outsourcing constitutes 32% of the $52 Trefis price estimate for Accenture’s stock and that technology outsourcing accounts for the majority of this value (21% of Accenture’s stock).
In 2009, technology outsourcing contributed $5.7 billion to total outsourcing revenues of $8.9 billion. Due to the cancellation of some outsourcing deals throughout 2009, we had expected outsourcing revenues to remain flat in 2010; however, with new bookings at their highest levels in 3 consecutive quarters, we now expect slightly positive revenue growth in outsourcing.
As a consequence of new bookings, we expect a rise in headcount of Accenture outsourcing professionals.
Technology Outsourcing Headcount Expected to Increase
We believe technology outsourcing is one of the divisions where we will see additional professionals as the bookings for current quarter have been strong with 5 deals of more than $100 million each.
Technology outsourcing consists primarily of software Application Outsourcing and Infrastructure Outsourcing. We forecast that the headcount for each segment will increase in 2010.
You can modify the Trefis forecast for Application Outsourcing Headcount above to see how changes in headcount can impact Accenture’s stock.
For additional analysis and forecasts, here is our complete model for Accenture’s stock.
Disclosure: No positions