At 20 times free cash flow, Accenture stock looks bargain-priced.
IT consulting giant Accenture (ACN 7.29%) surged 7% through noon ET on Thursday despite missing its fiscal third-quarter 2024 earnings by a whisker.
Heading into earnings, analysts forecast Accenture would earn $3.15 per share (adjusted for one-time items) on just over $16.5 billion in sales. The company actually earned only $3.13 per share, and its sales came in short at $16.5 billion. Earnings as calculated according to generally accepted accounting principles (GAAP) were lower at $3.03 per share.
Accenture’s Q3 earnings
That’s not to say Accenture’s news was all bad. While sales missed expectations and declined 1% year over year, and GAAP earnings declined 3%, Accenture’s operating profit margin climbed almost 2 full percentage points to 16%. Furthermore, its guidance suggests business is looking up.
New bookings in the quarter grew 22% to $21.1 billion, foreshadowing an imminent return to sales growth. Of particular note, “generative AI new bookings” — artificial intelligence work Accenture has been hired to do — reached $900 million in the quarter, and $2 billion fiscal year to date. That means AI business in Q3 was about 50% bigger than the average of the prior two quarters, showing strong growth in this key business area.
And that’s right. It also means Accenture is an artificial intelligence stock.
Is Accenture stock a buy?
Turning to guidance, Accenture expects sales to end up growing about 2% year over year for full-year 2024, to earn 14.8% operating profit margin on those sales, and to earn between $11.29 and $11.44 in GAAP profit. Adjusted earnings will be a bit higher at about $11.93, but short of analysts’ forecast $12.08 — so expect another earnings miss in Q4.
Still, with free cash flow for the year coming in around $9 billion, Accenture stock doesn’t look at all expensive at its current $180 billion market cap — a price-to-free-cash-flow ratio of only 20. If Accenture can translate its 22% bookings growth into 22% earnings growth going forward, that should be good enough to make Accenture stock a buy.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Accenture Plc. The Motley Fool recommends the following options: long January 2025 $290 calls on Accenture Plc and short January 2025 $310 calls on Accenture Plc. The Motley Fool has a disclosure policy.