Accenture PLC Is a Trending Stock: Facts to Know Before Betting on It

Accenture ACN is one of the stocks most watched by Zacks.com visitors lately. So, it might be a good idea to review some of the factors that might affect the near-term performance of the stock.

Over the past month, shares of this consulting company have returned +2%, compared to the Zacks S&P 500 composite's +1.6% change. During this period, the Zacks Computers - IT Services industry, which Accenture falls in, has gained 4.2%. The key question now is: What could be the stock's future direction?

While media releases or rumors about a substantial change in a company's business prospects usually make its stock 'trending' and lead to an immediate price change, there are always some fundamental facts that eventually dominate the buy-and-hold decision-making.

Earnings Estimate Revisions

Here at Zacks, we prioritize appraising the change in the projection of a company's future earnings over anything else. That's because we believe the present value of its future stream of earnings is what determines the fair value for its stock.

We essentially look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest business trends. And if earnings estimates go up for a company, the fair value for its stock goes up. A higher fair value than the current market price drives investors' interest in buying the stock, leading to its price moving higher. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

Accenture is expected to post earnings of $2.77 per share for the current quarter, representing a year-over-year change of +2.2%. Over the last 30 days, the Zacks Consensus Estimate has changed +0%.

The consensus earnings estimate of $11.95 for the current fiscal year indicates a year-over-year change of +2.4%. This estimate has changed +0.2% over the last 30 days.

For the next fiscal year, the consensus earnings estimate of $12.60 indicates a change of +5.5% from what Accenture is expected to report a year ago. Over the past month, the estimate has changed +0.2%.

With an impressive externally audited track record, our proprietary stock rating tool -- the Zacks Rank -- is a more conclusive indicator of a stock's near-term price performance, as it effectively harnesses the power of earnings estimate revisions. The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #2 (Buy) for Accenture.

The chart below shows the evolution of the company's forward 12-month consensus EPS estimate:

12 Month EPS

Projected Revenue Growth

Even though a company's earnings growth is arguably the best indicator of its financial health, nothing much happens if it cannot raise its revenues. It's almost impossible for a company to grow its earnings without growing its revenue for long periods. Therefore, knowing a company's potential revenue growth is crucial.

For Accenture, the consensus sales estimate for the current quarter of $16.33 billion indicates a year-over-year change of +2.2%. For the current and next fiscal years, $64.82 billion and $67.76 billion estimates indicate +1.1% and +4.5% changes, respectively.

Last Reported Results and Surprise History

Accenture reported revenues of $16.47 billion in the last reported quarter, representing a year-over-year change of -0.6%. EPS of $3.13 for the same period compares with $3.19 a year ago.

Compared to the Zacks Consensus Estimate of $16.52 billion, the reported revenues represent a surprise of -0.35%. The EPS surprise was -0.32%.

Over the last four quarters, Accenture surpassed consensus EPS estimates three times. The company could not beat consensus revenue estimates in any of the last four quarters.

Valuation

No investment decision can be efficient without considering a stock's valuation. Whether a stock's current price rightly reflects the intrinsic value of the underlying business and the company's growth prospects is an essential determinant of its future price performance.

While comparing the current values of a company's valuation multiples, such as price-to-earnings (P/E), price-to-sales (P/S) and price-to-cash flow (P/CF), with its own historical values helps determine whether its stock is fairly valued, overvalued, or undervalued, comparing the company relative to its peers on these parameters gives a good sense of the reasonability of the stock's price.

The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to both traditional and unconventional valuation metrics to grade stocks from A to F (an An is better than a B; a B is better than a C; and so on), is pretty helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.

Accenture is graded C on this front, indicating that it is trading at par with its peers.

Bottom Line

The facts discussed here and much other information on Zacks.com might help determine whether or not it's worthwhile paying attention to the market buzz about Accenture. However, its Zacks Rank #2 does suggest that it may outperform the broader market in the near term.

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