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Where next for Accenture’s share price after Q3 earnings beat?

Accenture’s share price seems to just keep climbing. Having hit an all-time high on 21 June, shares are now up 33% since the start of the year. Thursday's Q3 earnings numbers from the Dublin-based consultancy continued the good news, smashing analysts’ expectations, with both earnings and revenues up.

Yet, the Q3 results revealed a decrease in Accenture's [ACN] European business and cloud bookings. This begs the question, how long can the share price's rally last?

 

How has Accenture's share price performed?

Since this time last year, the stock is up almost 15%, consummately outperforming the S&P 500's 8% gains. Although December was a tricky time for the stock, falling to a year low as part of the wider tech selloff.

March has been the high point, with the share price jumping almost 6% in a day following a Q2 earnings beat. In the results, free cash flow topped $1.2 billion and cloud bookings hit a new record of $11.8 billion. Overall revenues of $11.10 billion also surpassed the Zacks Consensus Estimate by 0.88%. 

Expectations for the third quarter were for more of the same, with the consensus on Zacks predicting earnings per share of $1.73 on $10.99 billion in revenue.

 

What’s behind Accenture’s gains?

Behind Accenture's soaring share price is a focus on digital and cloud services. This includes managing digital marketing campaigns and planning cloud migrations for large corporates. Developing its capabilities in emergent IT fields has also spurred interest in the stock, with Accenture Chairman and CEO Pierre Nanterm saying A.I. could boost revenues by 38% by 2022.

38%

Predicted revenue boost from A.I. by 2022

  

Some also consider the stock impervious to recession fears. Bernstein analyst Harshita Rawat explains: “[Accenture's share price] is likely better positioned [in a recession] due to diversified revenue growth and higher share of cloud”.

 

Q3 earnings results; what happened?

In Thursday's Q3 results, earnings per share came in at $1.93 a share, topping the Zacks Consensus Estimate. Revenue hit $11.10 billion, well above analysts’ predictions of $96.5 million, and up 4% from the same quarter last year. 

"The strength and consistency of our performance reflect the unique diversity of Accenture's business - from an industry, geographic and capability standpoint - as well as the continued successful execution of our growth strategy," said interim CEO David Rowland. 

“The strength and consistency of our performance reflect the unique diversity of Accenture's business - from an industry, geographic and capability standpoint - as well as the continued successful execution of our growth strategy” - Accenture interim CEO, David Rowland

 

Accenture raised its guidance for full-year revenue growth to between 8% and 9%, with earnings per share expected to be between $7.28 and $7.35 per share. 

Overshadowing the stellar results was a 9% drop in bookings for the third quarter. Chief Financial Officer KC McClure suggested that bookings can be 'lumpy' and pointed to a strong Q4 pipeline.

In other bad news, revenue from Accenture’s European business fell to $3.77 billion, down from the $3.88 billion the region brought in for the same quarter a year ago. These concerns saw Accenture's share price tick 0.22% lower in afterhours trading.

 

Market cap$119.2bn
PE ratio (TTM)25.97
EPS (TTM)7.20
Quarterly Revenue Growth (YoY)3.80%

Accenture share price vitals, Yahoo Finance, 2 July 2019

 

What do the analysts think?

Despite the recent solid performance, analyst targets remain muted. The consensus price target for Accenture is $187.76, which would represent a marginal 0.5% upside if hit.

Citigroup are more optimistic on the stock, rating it a "Buy" and upping its price target from $194 to $211 in a June research report. Hitting this would represent a 13% gain on the current share price.

For investors asking what's next for Accenture, the outlook isn’t clear. Demand for Accenture’s IT services is clearly strong and there seems the potential for upside. But this could be limited if fears of a slowdown weigh on sentiment.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

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