Has Accenture Stock Peaked?

We believe there may be better places for your money than Accenture stock (NYSE: ACN) at the present time. Accenture offers outsourcing and consulting services and helps its clients improve their business processes by leveraging technology and utilizing outsourced service providers wherever appropriate. Accenture trades at $223 currently and it has gained 7% in value so far this year. It traded at a pre-Covid high of $214 in February, and it has risen past that level now. Also, ACN stock has gained 57% from the low of $142 seen in March 2020, as the company was able to curb the impact of the pandemic on its business. Accenture’s Q4 earnings (fiscal year ending August) saw revenue come in at $44.3 billion, up marginally from $43.2 billion for 2019. EPS, too, came in higher at $8.03 from $7.49. However, earnings included other income of $224 million vs a loss of $117 million last year, which helped boost EPS by around $0.40. Further, in view of the strong rally in ACN stock since late March, we believe that the stock has little room for growth in the near future. Our conclusion is based on our detailed analysis of Accenture’s stock performance during the current crisis with that during the 2008 recession in an interactive dashboard analysis.

2020 Coronavirus Crisis

Timeline of 2020 Crisis So Far:

• 12/12/2019: Coronavirus cases first reported in China
• 1/31/2020: WHO declares a global health emergency.
• 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
• 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
• From 3/24/2020: S&P 500 recovers 47% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.

In contrast, here’s how ACN and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

• 10/1/2007: Approximate pre-crisis peak in S&P 500 index
• 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Approximate bottoming out of S&P 500 index
• 1/1/2010: Initial recovery to levels before accelerated decline (around 9/1/2008)

Accenture vs S&P 500 Performance Over 2007-08 Financial Crisis

ACN stock declined from levels of around $32 in September 2007 (pre-crisis peak) to levels of around $23 in March 2009 (as the markets bottomed out), implying ACN stock lost 27% from its approximate pre-crisis peak. It recovered post the 2008 crisis, to levels of about $34 in early 2010, rising by 44% between March 2009 and January 2010. In comparison, the S&P 500 Index saw a decline of 51%.

Accenture’s Fundamentals in Recent Years Look Strong

Accenture’s revenue grew 35% from $32.9 billion in 2015 to $44.3 billion in 2020, primarily led by customer additions and growth in average billing. With the strong growth in revenues, the company’s margins also expanded, resulting in a 65% EPS growth from $4.87 in 2015 to $8.03 in 2020. 

Does Accenture Have A Sufficient Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?

Accenture’s total debt increased from $27.2 million in 2016 to $62 million in 2020. However, Accenture’s total cash increased from $4.9 billion to $8.4 billion over the same period. The company also generated $8.2 billion in cash from its operations in 2020, and it appears to be in a really strong position to weather the crisis.

CONCLUSION

Phases of Covid-19 crisis:

• Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
• Late-March 2020 onward: Social distancing measures + lockdowns
• April 2020: Fed stimulus suppresses near-term survival anxiety
• May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
• July-September 2020: Poor Q2 results for many companies, but continued improvement in demand and a decline in the number of new cases and progress with vaccine development buoy expectations

Going by the historical performance and in view of the strong rally in Accenture’s stock since late March, we believe that the stock has little room for growth in the near future.

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