Accenture's Conservative Approach To FY24 Justified, Says Analyst: What Investors Should Know

BMO Capital Markets analyst Keith Bachman reiterated the Market Perform rating on Accenture Plc ACN, lowering the price target to $350 from $360.

ACN reported Q4 revenue growth of 4% Y/Y to $15.98 billion, missing the consensus of $16.07 billion. Consulting revenues decreased by 2% Y/Y to $8.20 billion, while Managed Services revenues increased by 10% Y/Y to $7.79 billion.

Bachman writes that FY24 revenue growth of 2-5% y/y CC was about 1pt below expectation and was disappointing, although it may be conservative.

Meanwhile, the analyst thinks it is appropriate for Accenture to approach FY24 conservatively, given that guidance was lowered twice in FY23.

Management commented that it is not anticipating any improvement in the macroeconomic or buying environment, which would continue to pressure both business units, notes the analyst. 

There is uncertainty regarding improving the economy, which may adversely impact the business units. Bachman forecasts Consulting growth of low single digits in FY24, helped by easier compares, and Outsourcing growth of mid-single digits.

Accenture took a charge of $472 million in the quarter for restructuring, with about $1.1 billion in charges for the year FY23, and is expecting $450 million in charges in FY24.

The analyst adds that the company is focused on managing headcount and limiting hiring to protect margins.

On the positive side, the analyst thinks digital will continue to help drive strong revenue growth with slow and steady margin expansion over time. However, relative to growth, the analyst thinks that valuation is full.

Bachman now forecasts 15.6% non-GAAP op margins in FY24.

Price Action: ACN shares are trading higher by 2.02% to $306.84 on the last check Friday.