Accenture (ACN) will report first quarter fiscal 2021 earnings results before of the opening bell Thursday. Compared to other tech/software stocks, Accenture shares have not participated in the robust market rally we have enjoyed since the March bottom, but the stock has held its own pretty well despite a muted enterprise IT spending environment.
Rising 17.5% in six months and up 17% year to date, the IT consulting company has traded inline with Technology Select Sector SPDR ETF (XLK) while outperforming the S&P 500 index in both spans. Investors want to know if the modest gains are sustainable given the disruptions caused by the pandemic. Accenture, which provides consulting and outsourcing services for companies, will have to convince the Street that not only the business recovery has begun, but that the company can maintain its leading position in the IT services market.
Accenture’s consulting projects, which make up roughly 55% of total revenues, cover areas such as strategy and broad fields including blockchain, technology and digital transformation. The prospect of discretionary IT spending remains a topic some analysts believe will take more than a year for a recovery to occur. Having recently announced the formation of Accenture Cloud First, spending some $3 billion over three years, Accenture will need that recovery to occur more quickly.
The company says these initiatives aims to help clients across all industries rapidly become “cloud first” businesses and accelerate their digital transformation. As such, analysts will want to know how to factor these investment into their earnings projections and asses whether there will be pandemic-related headwinds. Meanwhile, as for the stock, with the shares already up some 20% off their October low, presumably in part due to its buyback strategy, can Accenture be relied upon to deliver in 2021 in a meaningful way absent a strong recovery in enterprise IT spending?
For the quarter that ended November, Wall Street expects Accenture to earn $2.05 per share on revenue of $11.36 billion. This compares to the year-ago quarter when earnings came to $2.09 per share on revenue of $11.36 billion. For the full year, ending August 2021, earnings are projected to be $8.04 per share, up 2% from $7.89 a year ago, while full-year revenue of $46.68 billion will rise 5.3% year over year.
Beyond its consulting projects, Accenture also relies heavily on its other segments, which includes accounting, procurement and application services. At the height of the pandemic, many of these services were seen as “discretionary,” meaning non-essential to business growth or continuity. How much demand would there be in these areas in the quarters ahead, given the current uncertainty surrounding the economy and the likelihood of reduced IT spending?
In Q4 Accenture’s results results not only fell short of top and bottom line estimates, the company also issued downside Q1 revenue guidance. Segment-wise, Product revenue and Resources revenue were the biggest decliners, falling 6% and 11%, respectively. Financial Services revenue and Communications, Media, and Tech revenue both slipped 1% year over year. These were offset by 11% rise in Health & Public Service revenue to $2.09 billion.
Investors will want to see Accenture improve on these metrics on Thursday. The guidance for next year will be another closely-watched metric, which would indicate the level of confidence the company has about its market position.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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