We came across a bullish thesis on Accenture plc (NYSE:ACN) on Long-term Investing’s Substack by Sanjiv. In this article, we will summarize the bulls’ thesis on ACN. Accenture plc (NYSE:ACN)’s share was trading at $356.18 as of Dec 27th. ACN’s trailing and forward P/E were 29.86 and 28.09 respectively according to Yahoo Finance.
Accenture (NYSE:ACN) represents a cornerstone of the professional services industry, leveraging a balanced mix of consulting and managed services to drive growth and deliver consistent returns. With a workforce of 799,000 spanning 200 cities across 50 countries, the company has established itself as a leader in operational transformation, cloud migration, and digital enablement for enterprises globally. Over the past decades, ACN has evolved from a back-office operations provider to an indispensable partner for Fortune Global 100 companies, addressing strategic and operational needs. Its scale and breadth have facilitated stable revenue growth, but the sheer size of the company has rendered fast growth increasingly challenging.
In fiscal year 2024, Accenture posted revenues of $66.3 billion, growing at a five-year CAGR of 8.6%. Consulting accounted for 51% of revenues, while managed services contributed 49%, with the latter growing faster at 8.3% over the past 12 years. The Americas remain the company’s largest and fastest-growing market. ACN’s operating income and free cash flow have grown steadily at CAGRs of approximately 9% over the last five years, reflecting a business model that scales linearly with headcount rather than offering significant operating leverage. Despite this limitation, ACN maintains operating margins of around 15% and net profit margins of 11%, underscoring its efficient operations.
A key driver of recent growth has been the surge in cloud adoption and exponential advancements in generative AI (GenAI). The company is recognized as a leading systems integrator for AWS, Azure, and Google Cloud, assisting clients in complex digital transformations. In the most recent quarter, Accenture generated $1.2 billion in GenAI bookings and $500 million in revenue, significantly outpacing the prior year’s figures. This focus on emerging technologies complements the company’s broad capabilities in supply chain optimization, cost reduction, and digital innovation, ensuring its relevance in the rapidly evolving technology landscape.
Accenture’s strategy includes consistent investment in acquisitions to bolster its offerings. In FY24, the company spent $6.5 billion on niche acquisitions, quickly integrating these firms to enhance its solutions. However, stock repurchases, a primary method of returning capital to shareholders, are partly offset by stock-based compensation, limiting the reduction in outstanding shares. This has moderated the impact of buybacks on shareholder value.
The company’s balance sheet remains robust, with cash and short-term investments exceeding long-term liabilities, reflecting a conservative financial approach. Long-term returns have been consistent, with a 15.9% CAGR over the past 17 years, though the absence of rapid acceleration in growth tempers its allure as a high-growth investment.
In its most recent quarter, Accenture delivered 9% revenue growth in local currency, outperforming guidance, while net profit and EPS grew by over 15%. These results reflect the company’s ability to capitalize on market trends, particularly in GenAI and cloud migration, despite the backdrop of subdued long-term revenue growth. Accenture continues to invest heavily in its workforce, deploying $242 million for acquisitions and conducting 14 million hours of training in the quarter. Free cash flow of $870 million underscores its financial strength, while shareholder returns via repurchases and dividends totaled $1.8 billion.
While Accenture’s size limits its growth trajectory, its resilience, broad capabilities, and strategic investments position it as a defensive yet innovative player in the professional services sector. Its steady growth and operational efficiency make it a compelling option for conservative investors seeking stability and consistent returns.
Accenture plc (NYSE:ACN) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 60 hedge fund portfolios held ACN at the end of the third quarter which was 68 in the previous quarter. While we acknowledge the risk and potential of ACN as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ACN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.