Accenture (NYSE:ACN) announced that its board approved the appointment of Ms. Julie Sweet as the company's next CEO, effective September 1, 2019. Ms. Sweet has been apart of Accenture's senior leadership team for over a decade and she currently serves as the North American CEO.
Ms. Sweet has an extremely impressive background but, to be honest, no one truly knows how this appointment will play out for the company or its shareholders. However, what I do know is that Accenture has great long-term business prospects and that the company is already well-positioned for the future. Therefore, I believe that the new CEO will start the game with pretty sweet hand (see what I did there?).
It would be an understatement to say that Accenture has promising long-term business prospects. To me, it is hard to find another technology consulting company (or company in general) that is as well-positioned as Accenture currently is. As I previously described here, Accenture is benefiting from operating in an industry that is experiencing significant growth. For example, the Internet of Things, or IoT, predictions all seem to project for the significant growth for the connected world to continue for years to come.
As shown, Gartner predicts that almost all new tech products (95%) will contain some type of IoT component by 2020. Furthermore, to put a dollar figure to the predictions, McKinsey & Company expects for IoT technology services to have a CAGR of 17% over the next five years and to reach $143B in spending by 2021.
Source: McKinsey & Company
And let's not forget that Accenture is already viewed as the go-to service provider in the IoT space. Moreover, this promising backdrop is only just getting started and, in my opinion, these estimates may actually turn out to be too conservative.
To this point, Accenture has been able to put up some strong operating results over the last few years.
|$ - in mill||2018||2017||2016||2015||2014||'14 to '18|
Source: Data from 2018 10-K; table created by author
A company with its top- and bottom-line up in excess of 30% over the last five years is impressive. Simply put, Accenture is in a sweet spot and the company's business should continue to be greatly impacted by several strong tailwinds that seem to be speeding up instead of slowing down. What's not to like?
It also helps the bull case that Accenture's recent operating results support the long-term story for this company.
On June 27, 2019, Accenture reported Q3 2019 adjusted EPS of $1.93 (beat by $0.04) on revenue of $11.1B (beat by $70M). These quarterly results also compare favorably to the year-ago quarter.
Source: Q3 2019 Infographic
Other highlights from the quarter:
There was lot to like about Accenture's Q3 2019 results and it is important to note that the 2019 YTD results were just as good (actually better).
Source: Q3 2019 Infographic
Accenture has one of the strongest growth profiles that I can think of, especially in the tech consulting field. The company is well-positioned for the future and I believe that the story is just now starting to play out.
Where the stock currently trades is one of the few concerns that I have when it comes to my investment in Accenture. ACN shares are trading at the top of the range based on its own historical metrics.
On the other hand, the stock is reasonably priced when factoring in the company's industry.
At the end of the day, ACN shares do look expensive at 27x earnings but I believe that this company has the potential to more than grow into its current valuation. Plus, as I previously described, this company deserves to trade at a premium valuation. And lastly, let's remember that Accenture is in a pretty sweet spot and the company has several significant catalysts in place that have the potential to create a tremendous amount of shareholder value.
Accenture is highly levered to the digital space, so any major disruption to the New would significantly impact the company's business prospects.
Additionally, reputation risk is an important consideration because Accenture is the go-to consultant in its industry. Specifically, ACN shares are trading at a premium to its peers (and the market), so a negative shift in investor sentiment would materially impact the company's stock price.
Lastly, Accenture has a new leader and it is not a given that Ms. Sweet will be able to keep this company from veering off of its current path (a path that has the potential to create significant value for its shareholders).
No one knows if Ms. Sweet is the right choice or not but it is hard denying the fact that Accenture is already firing on all cylinders. Additionally, the market conditions for Accenture continue to improve so this should bode well for the company (and its shareholders) over the next five plus years.
The company has plans to return a material amount of capital to shareholders over the next few years, and management believes that the growth for The New (i.e., Accenture's key growth driver) is still in the early innings. As such, investors with a time horizon longer than two-to-three years should consider any significant pullbacks as buying opportunities.
Author's Note: I hold an Accenture position in the R.I.P. Portfolio, and I have no plans to reduce my stake in the near future.
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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.
Additional disclosure: This article is not a recommendation to buy or sell any stock mentioned. These are only my personal opinions. Every investor must do his/her own due diligence before making any investment decision.