As Accenture (ACN) gears up to release its Fiscal Q4 results on September 26, I view its shares as offering a compelling investment opportunity. The company’s solid Fiscal Q3 results, driven by growth in AI, cloud services, and robust new bookings, signal continued momentum. Further, Accenture’s margins are on the rise due to prudent cost management, which, along with a positive outlook, supports the case for further gains. Thus, Accenture stock could be an attractive portfolio addition before its next earnings release, and I am bullish on the stock.
Revenue Growth Drivers in Q3 and Momentum for Q4
To better understand Accenture’s momentum going into Fiscal Q4, let’s look at its most recent Fiscal Q3 results. More specifically, Accenture posted $16.47 billion in Q3 revenue, a 1.4% rise in constant currency, driven by several key factors. Managed services, a core part of its business, grew by 4%, underscoring its early steps in helping clients navigate complex transformations toward an AI-driven future. This isn’t just “AI hype”—Accenture’s $2 billion in generative AI bookings secured year-to-date shows that businesses are eager to adopt cutting-edge technology, with Accenture as a trusted partner. This supports my bullish view.
In particular, key industries posted notable growth (in local currency) such as +9% for Health & Public Service. The advancement of digital health solutions and government agencies’ push toward modernization have fueled notable demand. Also, Accenture’s securing of $21.1 billion in new bookings during Q3—up 22% year-over-year—signals that its strategy of being a “reinvention partner” for clients is resonating. This increasingly high level of client commitment indicates that Accenture’s growth trajectory will likely continue into Q4 and beyond.
Improving Profitability and Margin Expansion
I’m also encouraged by the Accenture’s bottom line, as profitability improved in its recent quarter, mainly due to disciplined cost management and strategic investments. The company’s GAAP operating margin expanded by 180 bps year-over-year to 16.0%, while its adjusted operating margin increased to 16.4%, representing a 10 bps expansion. This margin expansion was supported by several factors, including optimized workforce management, streamlined operations, and reduced general and administrative costs.
Another contributor to this margin expansion was Accenture’s disciplined approach to managing costs related to employee severance and real estate. The company posted $77 million in business optimization costs in the quarter, showing its ongoing efforts to streamline operations. What’s noteworthy here is that these efforts position Accenture for long-term scalability and should further enable it to reinvest in critical growth areas without sacrificing profitability.
Therefore, even though adjusted EPS actually fell 2% to $3.13 in Fiscal Q3, Accenture’s margin expansion is likely to translate to a notable boost in profits once revenues from the high-margin AI bookings arrive in the coming quarters.
Q4 Preview: Positive Outlook Based on Guidance and Expectations
Looking ahead to Fiscal Q4, Accenture’s guidance and Wall Street expectations support a positive stance on the stock. The company expects revenue to range between $16.05 billion and $16.65 billion, implying a 2% to 6% increase in local currency and a sequential acceleration. Wall Street consensus is aligned with this, projecting revenue growth of 2.4% to $16.37 billion and adjusted EPS growth of 2.55% to $2.78.
Accenture’s management has also updated its full-year fiscal 2024 outlook, anticipating revenue growth of 1.5% to 2.5% in constant currency and GAAP EPS between $11.29 and $11.44. Notably, the company projects continued margin expansion, with an estimated GAAP operating margin of 14.8% and an adjusted operating margin of 15.5%, suggesting that its profitability improvements will likely persist.
Valuation & Growth Beyond Fiscal 2024 Supports Bullish Case
The final factor strengthening my bullish stance is Accenture’s valuation, which I find reasonable in light of the company’s promising growth prospects. As previously mentioned, the company’s emphasis on cost management and margin expansion is poised to drive significant improvements in profitability, especially with the strong growth in bookings. Evidently, Wall Street analysts project that Accenture’s adjusted EPS growth will accelerate to approximately 8.1% in Fiscal 2025 and 9.8% in Fiscal 2026, compared to the low single-digit growth estimate for Fiscal 2024.
If this momentum endures in the coming years, it looks reasonable to suggest that ACN stock is attractively valued at 26 times next year’s EPS. I do have faith in that momentum, considering the productivity gains the company can achieve through its ongoing investments in generative AI. At a P/E multiple of ~26x, I think this is particularly compelling opportunity given Accenture’s strong competitive moat and long-standing relationships with high-quality clients.
Is ACN Stock a Buy or Sell?
Wall Street’s view on Accenture stock remains fairly bullish. There’s currently a Moderate Buy consensus rating on the stock according to nine Buy, eight Hold, but no Sell recommendations in the past three months. At $349.44, the average ACN stock price target implies 4.53% upside potential.
If you’re wondering which analyst to follow concerning ACN stock, the most profitable analyst (on a one-year timeframe) is Tien Tsin Huang from J.P. Morgan (JPM), with an average return of 19.4% per rating and an 82% success rate.
Takeaway
In summary, I believe that Accenture’s solid Fiscal Q3 results, particularly in AI and cloud services, suggest strong momentum as it heads into Q4. Further, the company’s expanding margins, driven by disciplined cost management, signal improved profitability, while its focus on generative AI positions it for long-term productivity gains. Along with record new bookings and an encouraging outlook from management and Wall Street, Accenture’s investment case seems compelling before its Fiscal Q4 results are made available. The company is expected to report on September 26th, 2024.
