Accenture Leads The Way To Digitization
Accenture’s (NYSE: ACN) decision to focus on digital, the cloud, and security was the right move at the right time. Now, several years later, the company is not only growing but seeing its growth accelerate on a sustained basis as businesses flood to the cloud. While it is unlikely this pace of growth can be sustained indefinitely it looks like it will be the norm for the foreseeable future. The company’s guidance not only reflects this view but outpaces the Marketbeat.com analysts consensus estimate by a wide margin at the low-end of the range.
Accenture Has Market-Beating Quarter
Accenture had a market-beating quarter in which the revenue of $14.97 billion not only grew on a sequential basis and YOY basis but the growth is accelerating. The 27.3% YOY gain posted for the FQ1 period compares to a gain of only 23% in the previous quarter and 1% last year on strength in both segments. The Consulting segment grew by 33% while the Outsourcing segment grew a smaller 21% with both contributing at a rate above expectations. In relation to the Marketbeat.com consensus estimate, the revenue beat by 520 basis points, and similar strength was seen on the bottom line.
Moving down to the margin, the company experienced a 20 basis point contraction in gross margin that was offset by a 50 basis point reduction in SG&A as a percentage of sales. This led to FQ1 GAAP EPS of $2.78 which is up 28% from last year and beat the consensus by $0.15.
Looking forward, the company is expecting strength to continue due to record bookings. The company reported $16.8 billion in net new bookings or up 30% from last year. This is not only an indication of future strength but suggests YOY growth is still accelerating. As for the guidance, the company is expecting Q2 revenue of $14.3 billion at the low end of the range compared to the consensus of $14.08 and for a similarly large gap in the full-year results. In our view, with business still accelerating, there is an upside risk in the numbers.
Accenture Is Returning Capital To Shareholders
Accenture is returning capital to shareholders in the form of a dividend and buybacks. The dividend is worth a little more than 1.0% to shareholders and comes with a bias toward increases. The company has a tendency to increase the payout when it can and another tendency to cut it when it needs to that is not tied to the pandemic. The current environment favors increases and there is the buyback allotment to consider as well. The company repurchased about $0.845 billion worth of shares during the quarter or about 0.35% of the market cap and there is still $5.6 billion or 2.4% of the market cap left to go.
The Technical Outlook: Accenture Goes Ballistic
Shares of Accenture are up more than 7% in the wake of the report and guidance is likely to go higher in the near, mid, and long-term. The caveat is that price action is a little bearish in that profit-takers and possibly short-sellers are taking advantage of the spike in prices. If the market can maintain these levels in consolidation we would expect the stock to move up another $35 or 8.75% in the very near term. If not the stock may pull back and close the gap before moving up to set new highs.