Accenture (ACN) shares have been on a steady climb over the past few years, but a renewed boom in management consulting could make now the time to buy more than ever, some analysts say.
The Dublin-based consultancy giant delighted investors Thursday, with shares jumping 4% after the company posted an earnings beat and hiked its sales outlook for 2016. Accenture booked adjusted earnings of $1.34 per share for its fiscal second quarter, surpassing Wall Street forecasts by more than 13%, on top of revenue of $7.9 billion, which also beat estimates by about 3%.
"We delivered very strong financial results for the second quarter and I'm extremely pleased with the momentum we have created in our business over the last eight quarters," CEO Pierre Nanterme said on a Thursday morning earnings call with analysts. "This quarter our growth was again broad-based across different dimensions of our business. Our strategy is clearly resonating with the needs of our clients and differentiating Accenture in the marketplace and in regards to gaining significant market share."
Accenture shares jumped 4% in opening trading Thursday, following news the consultancy revised its fiscal 2016 outlook upward Thursday to between $5.21 and $5.32 from previous estimates of between $5.09 and $5.21.
And a team of analysts at J.P. Morgan Securities said that the 18% year-over-year gains in its consulting businesses is helping to lead the gains, which are likely to continue throughout the year, signaling a good time for investors to start buying. The analysts maintain an Overweight position in Accenture and a $118 price target.
"Outsourcing also modestly improved, which should ease some concerns," the analysts said. "However, Accenture tweaked down its margin guidance to the lower half of the prior range, but we believe solid revenue results should overshadow the concern. Higher earnings guidance included tax help but would have been higher without taxes as well."
Meanwhile Cantor Fitzgerald analyst Joseph Foresi also re-emphasized his bullish position in Accenture Thursday, underscoring the firm's competitive advantages relative to competing management consultancies.
"We maintain our Buy rating on Accenture with price target of $114, as the long term fundamentals remain attractive including a competitive advantage in consulting, a high level of sole-sourced work, margin leverage, earnings protection, and dividend," Foresi said. "We value Accenture at a premium to the peer group, as we expect revenues will be driven by strong growth in digital (Projected 25% for fiscal 2016)."
Cantor Fitzgerald's price target is based on 21x Accenture's fiscal 2016 earnings-per-share forecasts, 15x the company's enterprise value over EBITDA, and 22x estimates of Accenture's enterprise value over its projected free cash flow. (EBITDA is a standard valuation metric standing for earnings before interest, taxes, depreciation and amortization.)
The strong gains on Thursday also prompted Wells Fargo Securities to underscore its Overweight position on Accenture, based on its strong balance sheet and well-balanced growth opportunities across its businesses.
"Accenture is a leading global IT consulting (about 54% of revenue) and outsourcing (about 46% of revenue) firm," the analysts said. "We view the company as the best positioned global services provider as it has strong, high-level relationships with Global 1000 clients, global reach, and significant cost efficient delivery. A very strong balance sheet and significant cash flow that is primarily directed to regular share repurchase and (increasingly) dividends make the shares an attractive long-term quality investment, in our view."
Accenture shares are up 7% so far in 2016, and have climbed more than 25% over the past 12 months.