Accenture Rides On Longer-Term AI Opportunity, Analyst Forecasts Steady Margin Expansion

BMO Capital Markets analyst Keith Bachman reiterated the Market Perform rating on Accenture Plc ACN, raising the price target to $360 from $355.

Accenture will report its Q4 results tomorrow, Thursday, Sept. 28, 2023.

The analyst expects digital to continue to help drive strong revenue growth with slow and steady margin expansion over time.

Bachman writes Accenture has an opportunity to become a leader in AI and generative AI; however, it will take time to impact signings and revs.

Bachman thinks generative AI solutions are not "plug-and-play." Generative AI solutions require front-end design work and meaningful implementation work, including integrating LLMs with ERP, sales, marketing, and service solutions, amongst other areas. 

In addition, lots of data will need to be identified and curated in order to train LLMs, and the analyst thinks many of these LLMs will live in the cloud. 

Hence, creating and managing LLMs will likely require extensive data work, which the analyst thinks will be performed by Accenture and other service providers.

The analyst notes that Accenture's core competencies are managing and training a large workforce. Accenture has committed $3 billion to training and re-skilling for a growing AI world. Accenture intends to increase its AI-enabled force from 40k to 80k employees.

Overall, the analyst thinks ACN's execution is best-in-class among IT Service providers in the coverage.

However, on the flip side, Bachman highlighted a negative aspect of generative AI on the supply side. The analyst believes that software development will be ~30% more efficient due to generative AI, which may create revenue headwinds for Accenture, and all other IT services companies.

For FY24, the analyst lowered the revenue estimate to $67.450 billion from $68.035 billion. The EPS estimate is lowered to $12.56 from $12.83.

Price Action: ACN shares are trading higher by 0.76% to $312.96 on the last check Wednesday.