It’s hard to find tech stocks you can count on because the ever evolving industry means competition is fierce and constant strategic shifts are necessary. However, IT consulting firm Accenture PLC (NYSE:ACN) appears to have a winning strategy for remaining relevant and thriving in the tech space.
The firm’s most recent earnings results showed that Accenture has successfully made a meaningful shift toward new technology and that news sent ACN stock nearly $10 higher in just a few days, but despite the recent lift, I’d say ACN is still a buy if you’re looking into the long-term future.
Here’s a look at 3 reason ACN stock is worth it’s $163 price tag for long-term investors.
Bright Future Prospects
Investors cheered over Accenture’s third quarter results, and for good reason — the firm appears to have successfully shifted its business toward new kinds of technology with a long growth runway. Accenture has been growing a segment of its consulting business called “The New,” which includes things like cloud computing, digital services and data security. During the third quarter, this segment made up over 60% of the firm’s overall sales — a 5% leap from Accenture’s second-quarter results.
That’s important because it represents two things. First, “The New” is ACN stock’s future. In order for the company to continue getting new clients and holding on to old ones, it will have to offer services that are relevant. With so many companies shifting their operations online and updating security, Accenture is maintaining it’s position as a must-have service for firms making a transition. Secondly, and perhaps more importantly from a long-term investors’ perspective, it shows that ACN can execute. It’s not easy making big strategic shifts like this one, but Accenture has proven that it can. That should provide some comfort to investors nervous about a long-term position in the tech space, where things change rapidly.
Another reason ACN stock gets my vote as a long-term bet is the company’s sound finances — and that translates into gains for investors, as the company has historically been a shareholder-friendly firm. The company pays a 1.63% dividend yield, which doesn’t turn any heads, but that figure has been steadily rising over the past few years. Not to mention that the firm’s ultra-low 39.59% payout ratio suggests there is plenty of room for a few more substantial increases without putting much of a financial burden on the firm’s operations.
ACN’s impressive free cash flow means the firm has a lot of room to return value to shareholders and, last quarter, we saw the firm return 47% of its free cash flow to shareholders through dividend payments. And another large chunk was used to conduct a $437 million share buyback.
Keeping Competition at Bay
There’s no question that Accenture is up against some stiff competition when it comes to IT consulting –especially in its “New” segment, where heavy hitters like International Business Machines (NYSE:IBM) are shifting their focus toward similar objectives in order to orchestrate their own turnaround plans. However, unlike IBM, Accenture is purely a consulting firm, meaning the company doesn’t have any interest in trying to sell its own hardware.
That positioning means Accenture can win clients on the basis that the firm will always have its best interests at the forefront since it has nothing to gain by recommending a particular hardware provider. Not only that, but it’s also important to note that without hardware on the books, it’s much easier for ACN to shift its focus quickly as the tech space evolves.
Another thing Accenture has going for itself is a widely diversified business. Not only does ACN operate around the globe, but the firm also assists businesses across a wide variety of industries. This means that when the financial services sector sees a slowdown, Accenture’s hundreds of other clients, spanning a range of other industries, can pick up the slack.
Bottom Line on ACN Stock
ACN stock is a great IT play for investors looking to buy a stock on hold on to it. It’s certainly not the cheapest company out there and it may not be a hyper-growth stock, but it’s a reliable long-term bet that will likely outperform the market in the years to come.
Accenture has proven that it’s strategic shift is taking hold and the company’s ability to change with the times should be comforting to investors.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.