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Morningstar | Accenture’s 2Q Results Show Firm’s Value Proposition Is Secure; Raising FVE to $148. See Updated Analyst Note from 28 Mar 2019

Accenture delivered robust second-quarter results, despite management uncertainty and sadness after well-respected former CEO, Pierre Nanterme, passed away having stepped down in December 2018 for health reasons. The company stressed that they did not hit the pause button, and it showed in the results. Accenture’s “new” businesses, covering digital, cloud, and security, continued to see double-digit growth and represented the majority of company revenue. Management is optimistic this will continue, to a higher degree than previously expected, and raised its full-year guidance. We think the firm’s view isn’t out of line given their track record in accelerating cloud integration and proving their worth in cybersecurity. We are raising our fair value estimate slightly to $148 per share from $145 for this wide-moat name, given the better-than-expected outlook for this year.

In the second quarter, revenue grew by 5% year over year to $10.5 billion, marking growth of 9% in constant currency. Accenture’s largest operating group, Products, grew at 10%, continuing its fifteenth quarter of consecutive double-digit growth. This posed a similar growth number to communications, media and technology, which grew at 12%. Resources had the highest growth at 22%, but H&PS and financial services sustained single-digit growth, at 3% and 2%, respectively. For most operating groups, growth markets were a major contributor to revenue increases--making up 16% of overall revenue growth, with Japan, Brazil, China, and Singapore being standouts.

Bookings continued to build, as we projected, as the firm disclosed an outsourcing book/bill of 1.1 and consulting book/bill of 1.2, as opposed to 0.9 and 1.0, respectively, in the first quarter. The firm continued its margin expansion, reporting an increase of 20 basis points as opposed to the second quarter last year. Expecting top- and bottom-line strength to continue for the next two quarters, the firm raised its full-year EPS guidance from the $7.01 to $7.25 range to the $7.18 to $7.32 range and estimated their CEO position should be filled internally by the end of the year.