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Nicholas Kitonyi
Nicholas Kitonyi
Articles (368)  | Author's Website |

Is Accenture's Post-Earnings Pullback an Opportunity to Buy?

The stock is down 8% after earnings

September 28, 2020 | About:

Shares of Ireland-based information technology services company Accenture PLC (NYSE:ACN) are down more than 10% since Sept. 23. The professional services provider reported its most recent quarterly results on Sept. 24, which triggered a sharp decline in the stock price. However, as we see in the chart below, the stock is still overvalued according to the Peter Lynch earnings line.

The plunge was attributed to the weaker than expected earnings and revenue guidance for the next quarter and fiscal year 2021. The company also missed revenue and earnings expectations for the quarter.

Despite the current pullback, shares of Accenture are still up nearly 50% since bottoming on March 23. Its year-to-date gain of about 2.3% means that it also outperforming the S&P 500, which is up 1.25% this year.

Highlights from recent quarter results

In the company's most recent quarterly results, Accenture reported earnings per share of $1.70 on revenue of $10.84 billion. This compares to consensus analyst estimates of $1.74 in EPS and $11.06 billion in revenue for the prior-year quarter. The company's top line and the bottom line fell by 2% and 2.3%, respectively, compared to results posted the same period a year ago.

Accenture expects the fiscal year 2021 revenue to grow by 2%-5%in constant currency terms versus a consensus estimate of 5%. Its guidance on earnings growth of 4.6%-8.6% was also lower than market expectations of 9.5%.

The company's health and public services unit continues to experience a double-digit growth with 13% for the fiscal year 2020 and 12% for the fiscal fourth quarter. Meanwhile, the resources unit continued to struggle with a flat performance for the full year.

The company announced a 10% increase in cash dividends for the quarter and an additional $5 billion worth of share repurchases was approved for the coming quarters. This could boost the stock price in the short-term after disappointing results.

Its free cash flow balances for the quarter soared to a record $3 billion, totalling $7.6 billion for the year. This will give it more flexibility at a time when the top line and bottom line performances are tepid.

Valuation

From a valuation perspective, shares of Accenture appear to be trading at higher valuation multiples compared to close peers. The company's trailing 12-month price-earnings ratio of 28.07 is higher than Cognizant Technology Solution Corp's (NASDAQ:CTSH) 22.60 and Capgemini SE's (EPA:CAP) 24.61. However, it is slightly better than NV5 Global Inc.'s (NASDAQ:NVEE) 34.81.

Its forward price-earnings ratio of 26.39 is also higher than Cognizant's 16.98 and Capgemini's 14.88, as well as NV5's 12.71.

As such, despite Accenture's post-earnings pullback, the company's stock appears to still be relatively overvalued compared to its peers. It could take a while before something changes the current perspective given next year's weak earnings guidance.

Disclosure: No positions in the stocks mentioned.

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About the author:

Nicholas Kitonyi
Nicholas is the founder of CAGR Value. He is a financial analyst with extensive experience in investment research and stock market analysis. His analysis has been featured on several research sites.

Nicholas has solid knowledge of both U.S. and European markets. His investment style is focused on undervalued plays and growth stocks. Nicholas classifies himself as a swing trader and likes to trade GBP/USD, gold and FTSE 100, among other liquid instruments.

Visit Nicholas Kitonyi's Website


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