Accenture Sees Strong Bookings in Seemingly Vulnerable Consulting; Shares Fairly Valued

Accenture ACN posted nice fiscal 2023 second-quarter results, beating our expectations on the top and bottom lines. While the consulting business has been more vulnerable in this macroeconomic environment due to its more discretionary nature, consulting bookings were stronger than management expected, coming close to last year’s record. This helped the shares rise about 7% after the earnings release on March 23. While management moderated its guidance for fiscal 2023, we see strong bookings as insurance of overall health beyond this year. As a result, we are maintaining our $258 fair value estimate. We think the shares of this wide-moat name, which we believe boasts an exemplary capital allocation strategy, are currently fairly valued.

Second-quarter companywide revenue was up 5% year over year to $15.8 billion. Consulting revenue decreased 1% year over year, as reported, to $8.3 billion. In contrast, managed services (previously outsourcing) revenue grew 12% year over year, as reported, to $7.5 billion in the second quarter. New bookings increased 13% year over year in U.S. dollars with an almost equal share of consulting and managed services bookings. In particular, we were pleased by consulting’s book/bill of 1.3.

Gross margin for the quarter increased on a year-over-year basis to 30.6% from 30.1%, while operating margin was 12.3%, marking a decline from 13.7% a year ago. This resulted in adjusted earnings per share of $2.69, a 6% increase from the prior-year period, largely thanks to higher revenue results.

For the third quarter, management expects revenue of $16.1 billion-$16.7 billion. It slightly lowered its full-year outlook for year-over-year revenue growth to 8%-10% in local currency (from 8%-11%). Additionally, it now expects EPS of $10.84-$11.06 as opposed to the previously guided range of $11.20-$11.52.