Accenture Plc.: The ultimate player in technology consulting

written on August 25, 2021

From communications and media, life sciences, consumer goods and services, retail and a range of other industries, Accenture has been offering strategic, tactical, digital and operational consulting support to businesses of all sizes. With its global headquarters in Dublin and a workforce of 537,000 worldwide, the company possesses leading capabilities in digital, cloud and security as it strives to help its clients to reduce costs and outsource technology functions, servicing three in four Fortune Global 500 companies.

Boasting impressive revenue, a stock that has been on the ascend for years - rallying more than 400% over the past decade - and a strong business strategy, Accenture has long been considered a mature tech stock that offers great stability.

A brief history of Accenture

The Irish-based multinational company that provides consulting and professional services, was initially called Andersen Consulting, serving as the business and technology consulting division of the accounting firm Arthur Andersen back in the early 1950s. Offering its services with the aim to manage large-scale systems integration and to enhance business processes, the division conducted a feasibility study for General Electric (GE) to install a computer at its manufacturing facility in Louisville, Kentucky known as Appliance Park. The report resulted in the installation of a UNIVAC I computer and printer, considered to be the first commercial use of a computer in the U.S.

Decades later, increasing tension between Andersen Consulting and Arthur Andersen led to the creation of a new company in 2001 – Accenture. Success came shortly after, with the company making the ranks of the Forbes Global 2000. At the same time, it launched its Horizon 2000 strategic planning process, whereby more than 200 partners laid the groundwork for long-term success. In the meantime, Accenture began ranking among the 200 largest companies on the exchange, while a year later it was named one of Interbrand’s Best Global Brands, ranking 53rd with a brand valuation of $5.2 billion. Then, in 2009 the company changed its place of incorporation from Bermuda to Ireland.

Accenture has undertaken several notable jobs. In 2014, it won a $563 million contract to provide ongoing maintenance, software development and technology support for HealthCare.gov, while in 2015, the U.S. Department of Defense awarded a major Electronics Health Records contract to Accenture together with two other companies. Valued at $4.33 billion, the contract was set to serve 55 hospitals and 600 clinics. Two years later, it partnered with Apple (AAPL) to create iOS business software.

Operating under five main divisions, its Communications, Media and Technology sector offers services to the communications, electronics, high technology, media and entertainment industries, while its Financial Services arm, services the banking, capital markets and insurance industries, enabling clients to address growth, cost and profitability pressures. On the other hand, its Health and Public Service division provides services to healthcare providers, government agencies, public services, educational institutions and non-profit organisations. Its Products section deals with companies in a range of industries ranging from air, freight and travel to automotive, life sciences and others, whereas its Resources, services companies which belong to chemicals, energy, metals and mining, utilities and related industries.

And while for several companies 2020 was an unprecedented year due to the COVID-19 pandemic that brought a lot of uncertainties and disruptions to their operations, for Accenture it proved to be a period of immense recognition. During 2020, the firm made the lists of both Forbes Global 2000 and Forbes Global 500, while it also ranked amongst the top 5 in the Top 50 Companies for Diversity by DiversityInc. At the same time, Fortune magazine named it the world’s most admired Information Technology Services company.

Building extensive relationships along the years with some of the world’s top companies, several of which are Fortune Global 100 and Fortune Global 500 firms themselves, its current client base of 6,000 customers spans across 120 countries.

Fun fact

The company’s name was suggested by Danish employee Kim Petersen, after an internal competition, which was held at the company’s Oslo, Norway office. ‘Accenture’ was zeroed upon mainly due to its meaning, a combination of the terms accent and future. The meaning of the word was also in line with the company’s dream of being a leader in consulting and a high performer in this space.

When did Accenture go public?

Accenture debuted on the New York Stock Exchange (NYSE) on July 19, 2001, pricing its IPO at $14.50 per share, towards the high end of the anticipated $13-$15 range. The stock closed the day at $15.17, with the day’s high at $15.25, while the company managed to raise nearly $1.7 billion.

Boasting a 14-year dividend history, Accenture has been consistently paying a dividend, with regular increases since 2005. In fact, while for the payout year of 2005, the company offered a dividend of $0.30 per share every quarter, in 2021 its dividend has increased to that of $0.88, with a current dividend yield on August 16 of 1.09%.

How much would a $1,000 investment in Accenture a decade ago be worth?

A $1,000 investment made on July 22, 2011 would be worth $348.90 as of July 23, 2021, including dividends and the stock’s price appreciation, which marks a price gain of 419.99%. By comparison, the S&P 500 has risen 301.66% on a total return basis over the same timeframe.

Is Accenture a buy?

The company’s main business drivers have been its heavy investment in a digital, cloud and security strategy which have driven Accenture to transform into a trusted and viable consulting services provider. In fact, the company has spent decades establishing itself as a trusted advisor, constantly adjusting its business mix to make the most of changing market conditions, while it has been excellent at anticipating large and transformative technology trends and tapping into these through a number of mergers and acquisitions. Naturally, the pandemic disrupted many of Accenture’s markets with the exception of healthcare providers and public services, however, a number of markets that were forced to close down, made good recovery in the first half of 2021.

And all of the above have translated into positive results. For the full fiscal year 2020, revenues were $44.3 billion, an increase of 3% in U.S. dollars and 4% in local currency compared with fiscal 2019. On the other hand, diluted EPS (earnings per share) were $7.89, a 7% increase from fiscal 2019, including $0.43 from gains on an investment. Operating margin for fiscal 2020 was 14.7%, an expansion of 10 basis points and operating cash flow was $8.2 billion, with free cashflow at $7.6 billion. Meanwhile, new bookings came in at a record $49.6 billion. In terms of geographical regions, 46% of total revenues were generated in North America, 34% in Europe and 20% in what the company calls Growth Market.

So far in 2021, Accenture reported strong third quarter results and raised its business outlook for the fiscal year. For the quarter ending May 31, 2021, revenue came in at $13.3 billion, an increase of 21% in U.S. dollars and 16% in local currency over the same period last year, whilst diluted EPS was $2.40, a 26% increase from $1.90 for the third quarter last year. In the quarter, new bookings were at $15.4 billion, a 39% increase from the third quarter last year, with consulting bookings of $8.0 billion and outsourcing bookings of $7.4 billion.

Accenture’s stock has outperformed the S&P 500 index in the past year, partly due to earnings and revenue beat in the last three quarters, as well as thanks to raising its fiscal 2021 guidance. On August 13, 2021, the stock hit a new 52-week high, trading as high as $323.45. But the stock has also rallied more than 400% over the past decade, when the S&P 500 has advanced by 200%.

And according to analysts, there is more upside to come for the stock. Citigroup upped their price target on the company from $310 to $340 and gave the stock a ‘buy’ rating in a report on Friday, June 25. Likewise, others like Redburn Partners raised the stock from a ‘neutral’ rating to a ‘buy’, just as BMO Capital Markets upped their price objective and gave it a ‘market perform’ rating in a report in June.

What’s next for Accenture?

When considering that the company has already spent $1.1 billion on acquisitions in the first half of the year to expand its ecosystem, the growth highlighted above is impressive. By June 2021, Accenture has been moving full steam ahead, acquiring 35 companies, already surpassing the number of companies it purchased throughout 2020. The company typically purchases companies to scale in areas where it sees big market opportunity.

Some notable acquisitions so far have been Core Compete, a cloud analytics services firm that enables cloud-native solutions, which will help the company expand its talent in AI (artificial intelligence) - powered supply chain, cloud and data science. Its acquisition of Australian Industries & Co in late May means that the company can expand its Cloud First capabilities in delivering cloud native services to clients. On the other hand, through the acquisition of Pollux, a Brazilian-based provider of industrial robotics and automation solutions, Accenture can expand its capabilities for clients who operate in the consumer goods, pharmaceutical and automotive sectors. Then, as recently as July 21, it completed its acquisition of Openminded, a France-based cybersecurity services company, which provides advisory, cloud and infrastructure security, cyber defence and managed security services.

What’s more, the company plans to spend a further $2 billion on more acquisitions for the full year as it seeks to expand its higher-growth strategic priorities which include its cloud, interactive, digital transformation and security business. The move will not only help it differentiate itself from other IT giants like IBM (IBM), but will also help it widen its moat against digital-first challengers, like the likes of Globant (GLOB).

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