Analyst Note| Julie Bhusal Sharma |
Wide-moat Accenture reported strong second-quarter results, surpassing both management’s and our top-line expectations due to broad-based growth as all 13 industry groups grew double-digits from the prior year coupled with new bookings near $20 billion. Accenture’s growth was across industry, geography, and deal-sizes, indicative of the hyper-growth environment spurred by the accelerated digital transformation throughout all geographies. The current macroeconomic environment has enabled Accenture to improve its pricing power, which showed up in its top line. With that said, increased demand is correlated with increased hiring. Its workforce grew by 24,000 people for the quarter, which weighed on margins as wage inflation has increased. Although Accenture achieved top-line growth and increased its fiscal-year guidance, we view the macroeconomic factors, such as wage inflation, as a notable weight on margins. As such, we are maintaining our fair value estimate of $258 per share. After earnings results were announced, the stock is down around 1% to $321, making Accenture still overvalued, in our view.