Analyst Note| Julie Bhusal Sharma |
Wide-moat Accenture reported another strong quarter, with fourth-quarter results beating management’s and our top-line expectations thanks to broad-based outperformance on the back of accelerating digital transformations in all end markets. Accordingly, Accenture issued a positive fiscal 2022 outlook, reflective of robust top-line growth and year-over-year operating margin expansion. We view the margin expansion outlook as impressive, given the past year provides a tough comparison from cost reductions from lack of travel expenses. We expect Accenture to continue to benefit from digital and cloud transformations in its current growing market, while also viewing the budding Industry X business--an intelligent digital transformation agent--as a long-term value driver in this space. Alongside a strategic focus on cloud, particularly Accenture Cloud First’s platform, the company continues to show its strength in a variety of specific digital solutions, such as in its security business, which is growing at 29% as the digital-threat landscape secularly expands with the increasing technological dependence of enterprises. On the back of continued alignment of Accenture’s end markets with its business transformation-backed value proposition, alongside our annual model roll, we are increasing our fair value estimate to $236 per share from $220. Upon earnings results, the stock is up about 2% to $340, making Accenture still overvalued, in our view.