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In my June 27, 2025 post, I disclose initiating a 200 Accenture (ACN) share position @ ~$284.58 in one of the 'Core' accounts in the FFJ Portfolio.
I subsequently acquired:
- 100 shares @ $281.5887 on July 11; and
- 200 shares @ $278.5323 on July 28
and disclose these purchases in my July 29, 2025 post.
Further share price weakness led me to acquire:
- 100 shares @ $257.3874 on August 1; and
- 100 shares @ $241.38 on August 8
I now hold 700 shares at an average cost of $272.3687.
As a long-term investor, I view short-term share price pressure as a buying opportunity if I think a company's long-term prospects are promising.
Given that I just recently analyzed ACN, this post focuses on the change in ACN's valuation relative to that at the time of my prior posts.
Hurdles and Headwinds
Uncertainty over trade policies, global conflicts, and fears of a recession are leading to many companies and countries pulling back their spending.
The White House, for example, is making changes to lucrative consulting contracts and pushing for more cuts from consulting firms resulting in US federal-contract delays and cancellations. Such changes, however, are not unusual. What is really presenting a long-term threat to the consulting industry is artificial intelligence (AI).
Consulting firms typically charge by the hour. With AI making consulting more efficient, however, this impacts the 'business model'. Given this, many consulting firms are altering their fee structures so that they are not directly linked to the time spent on a project.
Historically, consulting firms have generated a significant proportion of their work by helping companies adopt software and new technology. While AI is relatively simple to get up and running, some firms are looking to for help. Eventually, however, this type of work may 'run out'.
Industry Consolidation
These hurdles and headwinds are likely to lead to industry consolidation.
In prior posts I touch upon the saturated asset management industry that is undergoing consolidation. The same applies to the consulting industry. ACN, however, will likely benefit from any industry consolidation.
ACN is essentially THE leader in the consulting sector with ~774,000 employees. In contrast, Deloitte has 460,000, Capgemini has 340,000, Cognizant has 360,000, McKinsey has 40,000, Booz Allen has 34,000, and Boston Consulting Group (BCG) has 33,000.
Strategy-focused consulting firms like BCG or McKinsey study a client’s business and present suggestions for change. ACN, on the other hand, also takes on operations and services on behalf of its clients. This could, for example, involve ACN employees providing cybersecurity.
ACN has rivals in the IT consulting space. These competitors, however, typically do not have the traditional C-suite consulting expertise nor the same breadth of clients. ACN is the only consulting company that offers it all at scale.
Accenture Federal Services, for example, designs and implements tech for US federal agencies. This business segment accounted for ~8% of ACN's global revenue and ~16% of its Americas revenue in FY2024. Its business is experiencing the impact of the Department of Government Efficiency (DOGE) taking aim at consulting deals in what the current US Administration deems wasteful spending. Cancellation of some government contracts will lead to ACN employees assigned to such contracts being at risk of job loss. ACN, however, may very well reassign these employees to more stable state and local-level projects.
ACN appears to be well-placed amongst the industry leaders to leverage its artificial intelligence (AI) investment. In the first half of the current fiscal year, it has already booked $1.8B in AI revenue and has delivered more than 2,000 generative AI projects. In May 2025, for example, the Australian telecom Telstra, kicked off a $0.7B AI joint venture with ACN; this JV will be 60% owned by ACN and will last for 7 years. The JV currently has ~1,200 people working from offices in Australia and India as Telstra pursues its ambition of becoming an AI leader.
Telstra wants to use AI to anticipate where and when faults may occur on hundreds of thousands of kilometers of fibre cables that run under the Australian continent, as well as process invoices and create software codes. It also expects AI to transform customer service. Telstra plans to use AI to quickly summarize customers’ experiences when they contact it, including what services have been acquired and disrupted. The intent is to eliminate the need for Telstra staff to place a client on hold while they physically check information.
Although ACN will invest heavily upfront, the pay-off for ACN will be pitching the experience it gains working with Telstra to other Australian clients.
Another headwind is the extent to which AI may impact ACN over the long-term. AI may present a sales opportunity for ACN today but could the technology replace the need for some of ACN's services in the future? Julie Sweet, ACN's chair and CEO thinks not and states:
AI is only a technology. The value comes from reinvention of how we work, our workforces and the tools we use. We are making sure that we are leading the way with our own reinvention.
Valuation
In my June 27, 2025 post, I reflect the following:
In the first 9 months of FY2025, ACN generated $9.90 of diluted EPS and the current FY2025 diluted EPS outlook is $12.77 - $12.89. Using my recent ~$284.58 purchase price, the forward diluted PE range is ~22.1 - ~22.3.
Using the current broker adjusted diluted EPS estimates, ACN's forward-adjusted diluted PE levels are:
- FY2025 - 19 brokers - ~22.1 based on a mean of $12.88 and low/high of $12.81 - $13.02.
- FY2026 - 20 brokers - ~20.6 based on a mean of $13.80 and low/high of $13.48 - $14.16.
- FY2027 - 13 brokers - ~19 based on a mean of $14.97 and low/high of $14.37- $15.55.
Although I look at brokers' earnings estimates, all estimates beyond the current fiscal year have no bearing on my investment decision making process. My reasoning is that I have no confidence that anybody can consistently and accurately determine a company's performance as we go further out on the calendar. The variance in the brokers' earnings estimates clearly indicates there is no consensus on ACN's future performance.
EPS can also be distorted by various means. My preference, therefore, is to gauge a company's valuation using FCF.
ACN's FY2025 FCF outlook is ~$9B - ~$9.7B (calculated under the conventional method). In FY2023, FY2024 and Q3 2025, the diluted weighted average shares outstanding was 638.592 million, 635.94 million, and 630.457 million. ACN plans to acquire additional shares in Q4 so if the FY2025 weighted average is reduced to ~632 million, we can expect ACN's FY2025 FCF/share to be ~$14.24 - ~$15.35. Using my recent ~$284.58 purchase price, the P/FCF is ~18.5 - ~20.
As noted earlier, however, my preference is to calculate P/FCF using the 'modified FCF' method which takes into consideration SBC.
ACN's YTD2025 SBC is ~$1.654B or ~$0.551B/quarter. If ACN's FY2025 SBC amounts to $2.205B (~$1.654B + ~$0.551B) and we deduct this from management's ~$9B - ~$9.7B FY2025 FCF outlook, the FY2025 FCF is ~$6.795B - ~$7.495B. We arrive at FCF ~$10.75 - ~$11.86 when we divide this range by ~632 million shares. Using my recent ~$284.58 purchase price, the P/FCF is ~24 - ~26.5.
As I compose this post on August 13, the current share price is ~$245.68. Using this share price and the current broker adjusted diluted EPS estimates, I arrive at the following forward-adjusted diluted PE levels:
- FY2025 - 22 brokers - ~19.1 based on a mean of $12.87 and low/high of $12.75 - $13.02.
- FY2026 - 23 brokers - ~17.8 based on a mean of $13.80 and low/high of $13.44 - $14.16.
- FY2027 - 16 brokers - ~16.4 based on a mean of $14.97 and low/high of $14.15- $15.69.
Looking at ACN's valuation from a FCF perspective we get the following:
ACN's FY2025 FCF outlook is ~$9B - ~$9.7B (calculated under the conventional method). In FY2023, FY2024 and Q3 2025, the diluted weighted average shares outstanding was 638.592 million, 635.94 million, and 630.457 million. ACN plans to acquire additional shares in Q4 so if the FY2025 weighted average is reduced to ~632 million, we can expect ACN's FY2025 FCF/share to be ~$14.24 - ~$15.35. Using the current ~$245.68 share price, the P/FCF is ~16 - ~17.25.
My preference is to calculate P/FCF using the 'modified FCF' method which takes into consideration SBC.
ACN's YTD2025 SBC is ~$1.654B or ~$0.551B/quarter. If ACN's FY2025 SBC amounts to $2.205B (~$1.654B + ~$0.551B) and we deduct this from management's ~$9B - ~$9.7B FY2025 FCF outlook, the FY2025 FCF is ~$6.795B - ~$7.495B. We arrive at FCF ~$10.75 - ~$11.86 when we divide this range by ~632 million shares. Using the current ~$245.68 share price, the P/FCF is ~20.7 - ~22.9.
Final Thoughts
My Final Thoughts are the same as those in my prior posts.
Despite various hurdles and headwinds, I consider ACN to be THE dominant industry participant. Industry consolidation is inevitable which should benefit ACN.
I consider ACN to currently be moderately undervalued.
I wish you much success on your journey to financial freedom!
Note: Please send any feedback, corrections, or questions to [email protected].
Disclosure: I am long ACN.
Disclaimer: I do not know your circumstances and do not provide individualized advice or recommendations. I encourage you to make investment decisions by conducting your own research and due diligence. Consult your financial advisor about your specific situation. I wrote this article myself and it expresses my own opinions. I do not receive compensation for it and have no business relationship with any company mentioned in this article.
