Accenture Deserves A Premium Valuation

Dec. 24, 2017 5:55 AM ETAccenture plc (ACN)7 Comments
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WG Investment Research


  • ACN beat Q1 2018 analysts' estimates and management raised the company's fiscal 2018 guidance.
  • ACN shares are richly valued, but I believe that the company's stock deserves to trade at a premium.
  • ACN shares are a long-term buy at today's price.

On December 21, 2017, Accenture (NYSE:ACN) reported better-than-expected Q1 2018 earnings and revenues. The company also raised its fiscal 2018 guidance and management now expects to achieve double-digit EPS growth (10-13%) for the current year. As you can expect, Accenture's beat and raise was well-received by the market.

Taking a step back, this company has reported impressive operating results over the last few quarters, so investors should not be surprised that ACN shares are outperforming the broader market by a wide margin so far in 2017.

Source: Nasdaq

ACN shares are up big in 2017 and the company's stock is trading at a relatively high valuation (more on this below), but, in my opinion, Accenture is still a long-term buy at today's price.

Recent Quarterly Results

Accenture reported Q1 2018 adjusted EPS of $1.79 on net revenues of $9.5B, which beat top- and bottom-line analysts' estimates. Moreover, the company's Q1 2018 adjusted EPS and net revenues were up 13% and 10%, respectively, from the same period of the prior year.

Source: Q1 2018 Earnings Presentation

As shown, 4 out of 5 of the company's operating units reported double-digit net revenue growth for the quarter and the 5th unit (i.e., Health & Public Service) had growth in the high single digits. I was really encouraged by the company’s broad-based revenue growth, in addition to the strong new bookings number ($10B), but I believe that the growth reported for the company’s digital, cloud, and security services businesses (i.e., "The New") was the major takeaway from the Q1 2018 earnings release.

The New now accounted for approximately 55% of the company’s total revenues and the growth has been tremendous since it was launched 4 years ago (net revenue up 3x). Plus, The New does not appear to be slowing down anytime soon, which means that these operations should

ChartACN PE Ratio (Forward) data by YCharts

ChartACN Revenue (3 Year Growth) data by YCharts

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This article was written by

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Our President and CIO is a CPA with experience in public accounting and the financial services industry. He earned his Master of Accountancy degree in 2008 and his B.S. in Business Management in 2007. He is also a Level III CFA candidate. He has been intrigued by the market from the start. Over the years, he has learned that long-term investing is a discipline that, if followed, will help contribute to building lasting wealth. As such, most of our articles will be about the investments that we plan to hold for at least 3 to 5 years, as long as the company's story does not change. As a Seeking Alpha contributor, our main goal is to write about the companies that are key to our portfolio with the hope of promoting discussion (for or against the investment) from others within the SA community.Please visit our website for more information about W.G. Investment Research LLC.

Disclosure: I am/we are long ACN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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