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Here's Why You Should Hold Accenture (ACN) in Your Portfolio

Zacks Equity Research

Accenture plc ACN remains poised for growth, backed by strong consulting as well as outsourcing businesses.

The company has an impressive Growth Score of A. This style score condenses all the essential metrics from the company’s financial statements to get a true sense of the quality and sustainability of its growth.

Accenture’s long-term (five years) earnings growth is pegged at 10.3%. Earnings for fiscal 2020 and 2021 are expected to grow 6.5% and 8.6%, respectively.

The company’s shares have gained a massive 37.5% year to date, outperforming the 30.3% rally of the industry it belongs to.

Factors Aiding the Stock

Accenture has been steadily gaining traction in its outsourcing as well as consulting businesses backed by high demand for services that can improve operating efficiencies and save costs.

On the outsourcing front, the company continues to see strong demand to assist clients with the operation and maintenance of digital-related services and cloud enablement. In the fourth quarter of fiscal 2019, Accenture’s outsourcing revenues increased 6% in U.S. dollars and 8% in local currency. In fiscal 2019, outsourcing revenues increased 6% in U.S. dollars and 9% in local currency.

On the consulting front, the company experiences strong demand for digital, cloud- and security-related services. In the fourth quarter of fiscal 2019, Accenture’s consulting revenues increased 5% in U.S. dollars and 7% in local currency. In fiscal 2019, consulting revenues increased 5% in U.S. dollars and 8% in local currency.

Acquisitions have been one of the key growth strategies for Accenture. They have enabled the company to enter new markets, diversify and broaden its product portfolio, and maintain its leading position. Acquisitions are expected to continue contributing significantly to its revenue stream.

Accenture’s strategy of enhancing its cloud capabilities through acquisitions and partnerships is a step in the right direction. This is evident from the recent forecast by several independent research firms. According to Gartner, the worldwide public cloud revenues are likely to grow 17.5% in 2019 to $214.3 billion, up from $182.4 billion in 2018. Per International Data Corporation (IDC), global spending on public cloud services and infrastructure market will witness a compounded annual growth rate (CAGR) of 22.3% during the 2019-2023 period. Therefore, considering the growing need for cloud-based applications and software, we expect Accenture’s investments in this space to propel long-term growth.

Some Hurdles to Counter

Higher talent costs due to a competitive talent market and Trump’s stringent policies on immigration are hurting consulting services providers like Accenture. The industry is labor intensive and heavily dependent on foreign talent. Moreover, while advancement in automation and AI offer massive opportunity to the industry, these technologies enable clients to comprehend and integrate new methods to improve performance, thereby creating uncertainty for consulting services firms.

Zacks Rank & Stocks to Consider

Accenture currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Business Services sector are Huron Consulting (HURN), Charles River Associates (CRAI) and CoreLogic (CLGX). While Huron sports a Zacks Rank #1 (Strong Buy), Charles River and CoreLogic carry a Zacks Rank #2 (Buy).

Long-term earnings (three to five years) growth rate for Huron Consulting, Charles River Associates and CoreLogic is estimated 13.5%, 13% and 11%, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.

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