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From Contact Centers to the Metaverse: Accenture’s Bold Vision for the Future and a Target Price of $335

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Accenture’s Business and Financial Performance: A Comprehensive Overview

Global professional services company Accenture offers services in technology, digital, operations, and strategy and consulting. Clients of Accenture come from a range of sectors, such as energy, healthcare, retail, and financial services.  Accenture’s USP is its capacity to support business innovation and transformation through technology and digital solutions. The company offers services that cover every aspect of business operations, from implementation and ongoing management to strategy and ongoing management.  With offices and teams spread across more than 50 nations, Accenture operates internationally. In the continents of the Americas, Europe, and Asia-Pacific, the business is well-established. Over 600,000 employees from over 120 different countries make up Accenture’s diverse workforce, which contributes a wealth of knowledge and experience to the business’ operations.

Accenture’s Financial Performance and Growth Drivers

Accenture reported record bookings for the second quarter of $22.1 billion, which is a record. This includes 35 clients who have quarterly booking totals of more than $100 million, which represents their second-highest quarter ever for such bookings and demonstrates the clients’ continued faith in them. With the aid of this stellar performance, they were able to generate revenues of $15.8 billion, representing 9% growth in local currency, bringing their total to $31.6 billion at 12% growth through H1 and expanding roughly two times the market. At revenues of $15.81B, the company exceeded analysts’ predictions by $223.10M. On a normalised and GAAP basis, the company’s earnings per share (EPS) fell short of estimates, with EPS of $2.39 missing estimates by $0.11 and $0.10, respectively.  Investors should take heart from the company’s strong revenue performance, which shows strong demand for its services despite the missed EPS. Higher sales volumes in important markets and favourable currency exchange rates, according to the company, were to blame for the revenue increase. The $22.1 billion in new reservations also saw a significant increase of 13% in U.S. dollars and 17% in local currency.

Accenture’s Investment Opportunities and Valuation Analysis

Cloud, data, AI, and security services continue to be its main growth drivers, and despite a slight decline in market estimates, Accenture’s revenue is still at or near 5%. The company places a high priority on accelerated transformations, working with clients to quickly achieve lower costs, stronger growth, more agility, and higher resilience. Its cloud business is experiencing strong growth thanks to its cloud-first strategy, and managed services play a strategic role in driving cost savings and accelerating digital transformation. The company is focusing on capital-efficient growth that fosters efficiency, fuels rapid expansion, and makes the most of current assets. It is collaborating with a leading global biopharmaceutical company to reinvent digital marketing powered by data and utilising SynOps-integrated technologies, and is advancing the use of generative AI by changing the way it handles daily high volumes of post-trade processing emails. The company has demonstrated interest in metaverse technology and will present its Tech Vision 2023 on March 30.

Layoffs Raise Questions About the Future of Tech Jobs

Unfortunately, the news of Accenture’s impressive earnings was overshadowed by the company’s plans to fire 19,000 employees in the next 18 months, or 2.5% of its current workforce. Through fiscal year 2024, they expect to save $1.5 billion in costs; of this, they expect to spend about $800 million in FY 23 and $700 million in FY 24, which will be made up of about $1.2 billion in severance and $300 million for the consolidation of office space. Over 800 of the over 10,000 leaders across their markets and services will be affected by these actions, which are expected to have a 2.5% or 19,000 impact on their current workforce, of which more than half are corporate functions that cannot be billed. By the end of the fiscal year in ’23, nearly half of the 19,000 employees will have left.The mass firings at tech firms are continuing, and the layoffs add to that trend, raising questions about how automation and AI will affect the job market.

Organic Investments and Human Capital Investment

With six acquisitions in strategic fields, Accenture has increased its inorganic investments. These include the cloud with the purchase of SKS in Europe, which will increase their specialised technology consulting and regulatory capabilities, allowing them to better serve their financial services clients; security with the purchase of Morphus in Brazil, a provider of cyber defence risk management and cyber threat intelligence; and supply chain with the purchase of Inspira. With 10.3 million training hours, a 12% increase year over year, they have also kept up their investment in their workforce, demonstrating their dedication to their staff and their development as a business.

DCF Valuation

DCF Valuation 2025 2024 2023 2022 2021 2020
Total Revenues 154331 106435 78841 61594.3 50533.4 44327
% growth 45% 35% 28% 21.9% 14.0%  –
Gross Profit 49386 32995 23652 19701.5 16364.1 13976.2
% margin 32% 31% 30% 32% 32% 32%
EBT, Incl. Unusual Items 26236 17030 11826 9196.2 7761.1 6774.3
% margin 17% 16% 15% 15% 15% 15%
NI to Common Excl. Extra Items         40,126         25,544         17,345 6877.2 5906.8 5107.8
% growth 26% 24% 22% 11% 12% 12%
Capital Expenditure            (772)            (851)         (1,183) -718 -580.1 -599.1
% of sales 1% 1% 2% -1.17% -1.15% -1.35%
Cash from Operations         57,102         34,059         17,345 9541.1 8975.1 8215.2
% of sales 37% 32% 22% 15.49% 17.76% 18.53%
Unlevered FCF         56,331         33,208         16,162 8823.1 8395 7616.1
Present Value of FCF         42,069         27,335         14,664
Terminal Value      1,60,542
Present Value of Terminal Value      1,19,897
Enterprise Value      2,03,965
Cash And Equivalents 7889.8
Long-Term Debt 45.9
Equity Value      2,11,809
Total Common Shares Outstanding 631.2
Target Price 335.57

Note : Nos in USD Mn. Estimates based on calculations by Equisights.

Conclusion

Accenture’s solid financial performance is a result of the company’s efforts to reduce costs, expand its Song and Industry X services, and make strides in the application of generative AI and metaverse technology. Cloud, data, AI, and security services provided by the company remain the industry leaders in digital transformation, while managed services play a strategic role in driving cost savings and accelerating growth.

According to the aforementioned DCF valuation analysis, Accenture is undervalued and offers investors a compelling opportunity to buy. A compound annual growth rate (CAGR) of 28% from 2021 to 2025 is forecasted by the model, which also projects significant revenue growth over the following five years. Over the same time period, it is anticipated that this growth will produce strong cash flows and unlevered free cash flow (FCF). The model predicts an enterprise value of $203.97 billion and an equity value of $211.81 billion, which are 25% higher than the current spot price, based on these projections.

The model also emphasises the company’s strong cash position, which includes $7.89 billion in cash and equivalents and only $45.9 million in long-term debt. Due to its strong financial position, the business is able to invest in opportunities for expansion, pay dividends, and return capital to shareholders.

With a target price of $335, which would represent a 25% increase over the current spot price, the DCF valuation analysis overall strongly recommends a buy recommendation for Accenture. For long-term investors, the company presents a compelling investment opportunity due to its promising growth prospects, sound financial position, and capacity to provide cutting-edge solutions to clients across industries.

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