Accenture‘s (NYSE:ACN) fourth-quarter results for fiscal 2017 have been posted, and they’re looking good. Despite the market’s muted response to the results, the earnings release gives shareholders of the information technology company reasons to be optimistic.
Here are three reasons investors should be happy with the results.
1. Earnings growth was better than it looked
Accenture’s EPS growth in its fourth quarter is significantly better than it looks.
Accenture reported EPS of $1.48, down from $1.68 in the year-ago quarter. But Accenture’s year-ago EPS notably included $0.37 from gains on the sale of a business. After adjusting to exclude these benefits in the year-ago quarter, Accenture’s year-ago EPS was $1.31.
In other words, Accenture’s EPS from normal operations increased a nice 13% year over year during the period, highlighting Accenture’s strong growth in profitability.
2. A key growth catalyst remains strong
Accenture is excelling in its ongoing rotation to the high-growth areas of digital, cloud, and security services, or what Accenture calls “the New.” Net revenues from these high-growth areas were $18 billion in the full year of fiscal 2017, up 30% year over year.
Looking ahead, these items should continue to have an outsized impact on Accenture’s overall results in fiscal 2018, as they accounted for about 50% of total revenue, Accenture said. This is up approximately 40% of revenue from fiscal 2016.
Growth in these areas is unlikely to slow down. First, management emphasized in its third-quarter conference call earlier this year that all three components of “the New” — digital, cloud, and security services — are seeing strong double-digit year-over-year growth. Given this broad-based growth across all three components in the important segment, any deceleration in the catalyst will likely be gradual instead of sudden. Also, strong growth in these areas is industrywide. Consider competitor IBM‘s (NYSE:IBM) recent strength in its “strategic imperatives,” or sales from cloud-computing data analytics, mobility, and social networks. Year-over-year growth in the segment in the company’s most recent quarter was primarily driven primarily by a 27% increase in mobile sales and a 15% increase in cloud-computing revenues.
3. Accenture stock is priced conservatively
Accenture’s strong fourth-quarter growth in earnings and the excellent performance of “the New” components of its business make a strong case for a premium valuation. But the case gets even better when investors consider the company’s guidance for fiscal 2018. The company expects GAAP EPS for the year to be between $6.36 and $6.60, up significantly from $5.91 in fiscal 2017 when adjusting to exclude the impact of a $0.47 pension settlement charge.
Yet despite Accenture’s recent growth, its promising strong growth in “the New” categories, and guidance for more strong EPS growth next year, Accenture has a price-to-earnings ratio of 24 (modest relative to the company’s ongoing growth) and offers a nice dividend yield of 1.8%.
In addition, Accenture’s hefty free cash flow enables the company to repurchase shares in droves — an effort that is helping drive EPS growth. In fiscal 2017, Accenture bought back $2.65 billion worth of shares, and it ended the quarter with $3.1 billion left on its share repurchase authorization.
Sure, Accenture stock isn’t a bargain. But it certainly appears to be priced conservatively after reviewing the company’s fiscal 2017 performance and management’s outlook for fiscal 2018.