Accenture Stock Peaked At $200?

by Trefis Team
-2.74%
Downside
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Market
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Trefis
ACN
Accenture
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Accenture stock (NYSE: ACN) is roughly unchanged since the beginning of this year, but at the current price of around $202 per share, we believe Accenture stock has a significant downside.

Why is that? Our belief stems from the fact that Accenture’s stock remains about 38% higher than the low seen in early 2018. Our dashboard What Factors Drove 37% Change In Accenture Stock Between 2017 And Now? provides the key numbers behind our thinking, and we explain more below.

Some of this rise over the past 2 years is justified by the roughly 20% growth seen in Accenture’s revenues, which translated into a further 39% growth in Net Income, largely due to lower operating expenses. Despite a 3% rise in outstanding share count, this led to a 35% growth in earnings on a per share basis.

Finally, Accenture’s P/E ratio rose from about 26.5x at the end of 2017 to 28x at the end of 2019. While Accenture’s P/E has dropped marginally to 27x now, given the volatility of the current situation, there is additional possible downside for Accenture’s multiple when compared to levels seen in the past years – P/E of 18x at the end of 2016, and 22x as recently as 2018.

So what’s the likely trigger and timing to this downside?

The global spread of Coronavirus, and the resulting lock downs and quarantine means that a lot of businesses are looking to cut costs. Given that Accenture is in the business of technology consulting and outsourcing, this could hamper their revenues as businesses could cut back on outsourcing activities. However, the impact this could have on the company is still not clear, and we believe Accenture’s Q3 ’20 results later this month will paint a clearer picture.

Regardless, if there isn’t clear evidence of containment of the virus at the time of the earnings announcement, we believe the stock will see its P/E decline from the current level of 27x to around 22x, which combined with a slight reduction in revenues and margins could result in the stock price shrinking to as low as $160.

While Accenture stock doesn’t seem to have much near term upside, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That Could Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

Our dashboard forecasting U.S. Covid-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture.
The complete set of coronavirus impact and timing analyses is available here.

 

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