Accenture (ACN) $240

Industry/Sector/Type - Consulting/Big Four/GARP

A Hybrid Consulting-AI model: I think this becomes an execution play as an eventual change to a hybrid - consulting model over the next decade, which should be beneficial for the client - I don’t believe clients can get AI related efficiencies entirely on their own or from generic solutions - that’s a decade away, if at all. It’s too early to write consulting firms off and if they’re nimble enough to embrace AI they will benefit. It would be a steady GARP (Growth At A Reasonable Price at this price) returning 8-10% + the dividend yield.

Positives

• Valuation has become interesting with the 31% drop in the past year.
• AI may be an initial headwind, but Accenture has enough strengths to leverage it as well as a competitive advantage with its large client base.
• If they execute properly it should be a large part of their offerings - that is a huge advantage. I cannot imagine a large fortune 500 company dumping ACN for an off the shelf OpenAI product.
• The data from its large client bases plus the strong relationships with its clients should be a big plus.
• Most importantly, clients cannot do this retooling of AI tasks at scale - ACN has a big role to play

Negatives

• AI is a threat to the billable hours consulting revenue model.
• There are some genuine concerns about AI reducing overall outsourcing demand, with several clients performing consulting tasks in-house and at lower costs - this is at a rudimentary level, though.
• Given the skittish nature of the markets regarding AI, the uncertainty should hurt investor sentiment towards Accenture and other consulting stocks, especially if bookings growth slows down or head counts reduce.

Stock Performance

1 Year  -31% 5 Year Flat 10 Year 138%

This year AI drilled a deep hole into Accenture and took away all of the 5 years' gains. However it did moderately well in the past decade, underscoring its longer-term brand loyalty with customers worldwide.

Valuation

Steady GARP valuation, sales trending lower, but earnings keeping historical benchmarks as are valuations.

Three years forward.

P/S 2 Sales Growth 5% P/S Growth 0.4 - This is reasonable, but not easily defensible should sales growth drop below 5%. It needs to show topline growth to prove that its business model still exists. Sales growth has slowed down from 9% of the previous decade.

P/E 16 Earnings Growth 10 PEG 1.6 - Good operating leverage with earnings growth double sales growth.

Earnings growth is the same at 10%

Cash Flow Margin 16%

Operating Margin 15%

Dividend Yield 2.6%