Accenture (ACN) drops 7% after missing Q4 estimates and weak guidance

Business consulting services provider Accenture (NYSE: ACN) reported its fourth quarter and fiscal 2020 earnings last Thursday. Accenture’s failure to meet the market’s earnings and revenue targets and the weak outlook for FY21 led to a 7% decline of ACN shares on Thursday. However, the tech rally on Friday helped ACN shares to stay flat at Thursday’s closing level. From its 52-week high ($247.82) achieved early this month, ACN stock has fallen 13% so far.

Q4 results

The Dublin, Ireland-based firm’s non-GAAP EPS of $1.70 and revenue of $10.84 billion came below the analysts’ views and both dropped 2% from the year-ago quarter. Except Health & Public Service, all other industry groups reported a decline in revenues. Geographically, revenue from Europe decreased 5%, while revenue from North America and Growth Markets slid 1%.

During the Q4 earnings call, CEO Julie Sweet stated, “Our clients were being impacted by unprecedented change before COVID-19. Then came COVID-19, giving a whole new meaning to unprecedented and requiring our clients to change virtually every aspect of their business faster than ever before.”

Outlook

Looking forward to fiscal 2021, Accenture eyes a revenue growth of 2% to 5% and earnings in the range of $7.80 to $8.10 per share, representing a growth of 5-9%. For the first quarter of fiscal 2021, Accenture expects revenue to be in the range of $11.15 billion to $11.55 billion. The guidance didn’t impress the market.

Accenture stated that it expects some improvement in the macroeconomic environment and doesn’t anticipate another macroeconomic shock. The company also expects to benefit from the transformation deals sold in the last few quarters.

Also read: Cognizant’s (CTSH) buying spree in 2020

Investments

COVID-19 has created a need for companies to invest more in digital, cloud and security. Accenture plans to continue to invest in FY21 in these high-growth market opportunities. In FY20, Accenture continued to increase its investments for the future, with $1.5 billion in acquisitions and $871 million in R&D.

Two weeks back, Accenture announced the creation of Accenture Cloud First and a $3 billion investment over three years. This investment will be funded by prioritizing the company’s expected investments across the business. Accenture Cloud First is a new multi-service group of 70,000 cloud professionals, with more than 100,000 people providing cloud-related services.

Still a buy

Even though Accenture dropped after missing Street’s expectations for Q4 and provided an unimpressive outlook, most of the analysts still maintain a Buy rating for Accenture. From one-third of the business in 2015, the “New” business has now become 70% of Accenture’s business. The 13% increase in Health and Public Service industry revenue growth in the just-ended fiscal year, the growth in new businesses (digitalization, cloud, security) and bookings in Q4, and the increase in free cash flow make the Accenture stock still an attractive stock to buy.

DISCLAIMER: This article does not necessarily imply the views of AlphaStreet, and contains opinions of the author alone.

Also read: Accenture Q4 2020 Earnings Call Transcript