Accenture Plc. ACN is gathering momentum from its positive earnings surprise history and strong fundamentals.
Also, shares of Accenture have been steadily trending higher on a year-to-date basis. The stock generated a return of 11.9%, which outperformed the Zacks Consulting industry’s gain of 10.8%.
What’s Behind the Momentum?
The company released better-than-expected first-quarter fiscal 2017 earnings on Dec 21, 2016. Its first-quarter fiscal 2017 earnings per share (‘’EPS”) of $1.58 beat the Zacks Consensus Estimate of $1.49. Also, both revenues and earnings increased on a year-over-year basis, reflecting increased focus on the Consulting and Outsourcing business, new bookings and continuous return of shareholders’ value.
The company posted a positive earnings surprise in the last four quarters with an average surprise of 5.3%. The company has a market cap of $72.6 billion with long-term earnings growth expectation of 10.25%.
Adding to the positives, Accenture’s remarkable run may continue next year as the company is currently trading at a lower price/earnings (P/E) multiple than the industry average. So, we believe that Accenture with its light forward P/E valuation of 19.9x compared with the industry average of 86.1x may be an optimistic bet. Moreover, the stock currently carries a VGM Style Score of “B,” which makes us hopeful about the stock’s future.
Acquisitions – A Key Growth Strategy
Most recently, Accenture announced that it has completed the acquisition of Defense Point Security, LLC DPS. However, the financial details of the transaction were kept under wraps.
The two companies had entered into an acquisition deal in October. The move marks Accenture’s efforts toward improving its government security portfolio. The latest acquisition is expected to expand Accenture’s federal services capabilities as well as strengthen its leadership position in providing cybersecurity solutions to the U.S. federal departments.
Accenture, continuing with its strategy to grow through acquisitions, also inked an agreement to acquire Arismore, a privately held company in France. The latest deal is expected to expand Accenture’s existing identity and access management services and security-as-a-service capabilities. It is also likely to strengthen its leadership position in France.
Considering the growing need for digital marketing, we expect Accenture’s investment in digital and marketing capabilities to boost long-term growth. It will also help the company in effectively competing with other digital marketing service providers such as International Business Machines Corp. IBM, Dell and Deloitte.