Analyst Note| Julie Bhusal Sharma |
Wide-moat Accenture brought in stellar third-quarter results, beating management’s top-line expectations thanks to broad-based growth as all of its industry verticals are recovering from the global pandemic. Accenture was able to expand margins even with a tough comparison with COVID-19 tailwinds. As a result, Accenture raised its guidance for fiscal 2021, and while it did not disclose an official fiscal 2022 outlook, management did hint at mild year-over-year operating expansion over the next fiscal year. We were not expecting such margin expansion given what we had forecast to be a tough comparison, given the lack of travel costs in the first half of fiscal 2021. Therefore, we’re more confident in Accenture’s abilities to mildly expand margins, as we think automation benefits can counteract increasing wages due to high demand for talent. With rosier expectations, we are increasing our fair value estimate to $220 per share from $200. After the results announcement, the stock is up about 2% to over $290, making Accenture still overvalued, in our view. We remain more bullish than FactSet consensus estimates of top- and bottom-line results over the next several years. However, we believe Accenture’s systematic risk should be considered average, which we believe explains the discrepancy in how the market is valuing the company.