Stock of the Week: Accenture: Solid Results, Dropping Stock. Hidden Opportunity or Warning Sign?
A blue chip under pressure
Here is the 22th edition of “Stock of the Week”. You can find all the previous analyses and my articles on my main page (for an easier search, use a computer, mobile version is harder to navigate).
Here are the links to the 3 previous “Stocks of the Week” as well
This week’s spotlight is on Accenture. Despite posting solid results, the stock took a sharp hit. Why the disconnect? Let’s break down what is driving the selloff, what challenges lie ahead, and whether this blue-chip is offering an opportunity.
While free subscribers already benefit from a wealth of valuable content, upgrading to a paid subscription unlocks exclusive research, in-depth insights, real-time portfolio tracking, advanced stock screeners, and more giving you an edge to stay ahead of the market. Don’t miss out: subscribe now and supercharge your investing journey!
One Pager
The stock at a glance
Recent news
AI remains a major strategic focus for Accenture, with rapidly growing revenue, widespread employee training initiatives, and the launch of new dedicated business units
Hiring has slowed, and headcount is declining. Not a great news but it highlights one of Accenture’s structural strengths: the flexibility to adjust its workforce in response to shifting demand
Despite softer market conditions, the company is maintaining its acquisition momentum into 2025, targeting high-impact sectors like engineering, AI, data centers, and digital services. Recent acquisitions include Soben, IQT Group, Yumemi, and Sipal
Last earnings report
In its third quarter of fiscal year 2025, Accenture reported revenues of $17.7B (+7.6% YoY) and surpassing analyst expectations of $17.3B. The company's earnings per share rose 15% to $3.49, reflecting strong operational performance.
However, new bookings declined 6% to $19.7B, falling short of the anticipated $21.5B. New bookings serve as a leading indicator of future revenue.
This poor metric triggered a 6.8% drop in its stock price. Accenture highlighted significant growth in generative AI, securing $1.5B in bookings for the quarter and achieving $2.6B in GenAI revenue over the past six months. The company also emphasized its strategic focus on AI, announcing the formation of a new Reinvention Services business unit to integrate AI consulting services, effective in September.
Analysts’ recommendations
June, 23. Oddo. Hold. $306 —> $328
June, 20. Goldman Sachs. Buy. $390 —> $370
June, 20. RBC Capital. Buy. $392 —> $372
June, 20. DBS Bank. $284 —> $315
June, 17. Jefferies. Hold. $280 —> $315
June, 17. BNP Paribas Exane. Hold. $315 —> $330
June, 16. JPMorgan. Buy. $349 —> $353
My analysis
Accenture remains the undisputed leader in IT business consulting, backed by a dominant market position and exceptional profitability. It is a cash-generating powerhouse, benefiting from broad-based growth and consistently returning capital through dividends and share buybacks
That said, Accenture's massive scale relative to its addressable markets makes it difficult to outpace the broader industry. While consulting remains highly fragmented, competitive moats are narrow, leaving even a leader like Accenture exposed to pressure
Following a strong post-COVID rebound, growth has now decelerated. A future reacceleration hinges on two key factors: an improving macroeconomic environment (as consulting is inherently cyclical), and the company’s ability to evolve its business model
Without meaningful transformation, it becomes difficult to justify a valuation north of 20x earnings
Despite its strengths, the stock currently faces headwinds and in my view, lacks the margin of safety needed to warrant a new position. I exited my Accenture stake in September 2024 with a solid 26% gain, plus dividends
Technical analysis
I have defined three buying zones that I find interesting for long-term investments during pullbacks. While these zones may not be reached, I am prepared for a market (or stock) consolidation to seize long-term opportunities. For me, this approach offers a better risk/reward ratio.
Of course, this is just my opinion, and I am sharing it with you, but each investor should decide on their own investment style. With that said, here are my three buying zones for Accenture.
Buying zone 1. $250
Buying zone 2. $202
Buying zone 3. $138
If you enjoyed this article and like Quality Stocks, please give it a like and spread the word!
Used source: Marketscreener.com. Affiliate link just here