$Accenture PLC(ACN)$ $Invesco QQQ(QQQ)$
Accenture PLC is a global professional services company that provides management consulting, technology, and outsourcing services. The company offers management consulting services in customer relationship management, finance and enterprise performance, operations, risk management, strategy, and talent and organization. Geographically, North America generates the highest percentage of the total revenue with ~47% in FY22 followed by Europe with a contribution of ~33%.
Investment Overview
AI initiatives to drive future growth in the long term for Accenture PLC (ACN). In June 2023, ACN announced an investment of US$3bn over three years in its Data & AI practice to help clients use AI in a responsible way. ACN has expanded its Data & AI practice to offer pre-built models that will help companies across 19 industries drive value. ACN has partnered with Salesforce to create an acceleration hub for generative AI. ACN's acquisition of Flutura and Stardog allows the company to enhance the diversity of its AI offerings.
Managed services are expected to drive revenue growth as clients continue to prioritize customer experience. ACN’s managed services grew 3.2% y-o-y in 2Q24 as the company continued to thrive in its cloud infrastructure managing solutions. ACN offers a full spectrum of infrastructure-managed services. Street estimates the managed services revenue of ACN to grow at a CAGR of 4% over FY24F-26F. According to Mordor Intelligence, the global managed services market size is expected to grow from US$260bn in 2023 to US$381bn by 2028, at a CAGR of 7.9%.
Pressure on small deals and Communication, Media, and Technology (CMT) segment will further affect revenue in the future. ACN has been witnessing a slowdown in small deals since the economic recovery after the pandemic. Clients have been controlling discretionary spending. CMT segment revenue’s contribution to the total revenue has declined to 17% in 2Q24 from 18% in 2Q23 as CMT revenue declined by 8% y-o-y. The management expects the CMT segment revenue to contract further in the future. These contractions in the small deals and CMT segment revenue make them the company's biggest weaknesses going forward.
1) Negative impact on small deals expected to remain unchanged in the near term. Contribution from the small deals to the overall revenue is expected to have been lowered due to the customers slowing down their discretionary spending. 2) Recession to impact the growth of ACN as the company prepares for layoffs. The potential global recession could disrupt the business activities of ACN’s clients as well as the company itself, potentially leading to more and more layoffs and organization restructurings incurring additional costs to overcome the recessionary pressure.
ACN currently trades at a 12m forward PE of 27x (last 5-year avg at 26x). Street projects ACN to have an earnings CAGR of 9.2% over FY24F-26F. However, the stock presents challenges due to the possibility of a global economic downturn impacting IT spending where street has revised down ACN earnings by 2%/1% for FY24F/25F.
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