Accenture (ACN)

Global professional services company Accenture (NYSE:ACN) reported Q4 CY2024 results topping the market’s revenue expectations, with sales up 9% year on year to $17.69 billion. Its non-GAAP profit of $3.59 per share was 5.1% above analysts’ consensus estimates.

Company Overview

With a workforce of approximately 774,000 people serving clients in more than 120 countries, Accenture (NYSE:ACN) is a professional services firm that helps organizations transform their businesses through consulting, technology, operations, and digital services.

IT Services & Consulting companies stand to benefit from increasing enterprise demand for digital transformation, AI-driven automation, and cybersecurity resilience. Many enterprises can't attack these topics alone and need IT services and consulting on everything from technical advice to implementation. Challenges in meeting these needs will include finding talent in specialized and evolving IT fields. While AI and automation can enhance productivity, they also threaten to commoditize certain consulting functions. Another ongoing challenge will be pricing pressures from offshore IT service providers, which have lower labor costs and increasingly equal access to advanced technology like AI.

Accenture's main competitors include other global professional services firms such as Deloitte, PwC, EY, and KPMG, as well as technology consulting companies like IBM (NYSE:IBM), Cognizant (NASDAQ:CTSH), Infosys (NYSE:INFY), and Capgemini (OTCMKTS:CAPMF).

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $66.36 billion in revenue over the past 12 months, Accenture is a behemoth in the business services sector and benefits from economies of scale, giving it an edge in distribution. This also enables it to gain more leverage on its fixed costs than smaller competitors and the flexibility to offer lower prices.

As you can see below, Accenture’s sales grew at a solid 8.6% compounded annual growth rate over the last five years. This shows it had high demand, a useful starting point for our analysis.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. Accenture’s recent performance shows its demand has slowed as its annualized revenue growth of 3.1% over the last two years was below its five-year trend.

This quarter, Accenture reported year-on-year revenue growth of 9%, and its $17.69 billion of revenue exceeded Wall Street’s estimates by 3.2%.

Looking ahead, sell-side analysts expect revenue to grow 4.5% over the next 12 months, similar to its two-year rate. While this projection suggests its newer products and services will spur better top-line performance, it is still below average for the sector.

Adjusted operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies because it excludes non-recurring expenses, interest on debt, and taxes.

Accenture has been an efficient company over the last five years. It was one of the more profitable businesses in the business services sector, boasting an average adjusted operating margin of 15.3%.

Analyzing the trend in its profitability, Accenture’s adjusted operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q4, Accenture generated an adjusted operating profit margin of 16.7%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Accenture’s EPS grew at a remarkable 10.6% compounded annual growth rate over the last five years, higher than its 8.6% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its adjusted operating margin didn’t expand.

We can take a deeper look into Accenture’s earnings quality to better understand the drivers of its performance. A five-year view shows that Accenture has repurchased its stock, shrinking its share count by 2%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

In Q4, Accenture reported EPS at $3.59, up from $3.27 in the same quarter last year. This print beat analysts’ estimates by 5.1%. Over the next 12 months, Wall Street expects Accenture’s full-year EPS of $12.28 to grow 5.8%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Accenture has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the business services sector, averaging 14.6% over the last five years.

Taking a step back, we can see that Accenture’s margin dropped by 5.2 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Accenture’s free cash flow clocked in at $870.3 million in Q4, equivalent to a 4.9% margin. This result was good as its margin was 2.3 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Accenture hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 45.8%, splendid for a business services business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Accenture’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Accenture is a profitable, well-capitalized company with $8.31 billion of cash and $8.15 billion of debt on its balance sheet. This $164.8 million net cash position gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We enjoyed seeing Accenture beat analysts’ revenue expectations this quarter. We were also happy its EPS outperformed Wall Street’s estimates. Overall, we think this was a decent quarter with some key metrics above expectations. The stock remained flat at $310.42 immediately after reporting.

Updated: May 23, 2025 at 12:01 AM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Accenture, you should also grasp the company’s longer-term business quality and valuation.

Accenture isn’t a terrible business, but it doesn’t pass our bar. Although its revenue growth was solid over the last five years, it’s expected to deteriorate over the next 12 months and its diminishing returns show management's prior bets haven't worked out. And while the company’s scale makes it a trusted partner with negotiating leverage, the downside is its cash profitability fell over the last five years.

Accenture’s P/E ratio based on the next 12 months is 24.3x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find better investment opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $356.29 on the company (compared to the current share price of $316.02).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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