Why Accenture Stock Popped a Lucky 7% on Thursday

Core Viewpoint - Accenture's stock appears undervalued at 20 times free cash flow despite a slight earnings miss in Q3 2024, with strong growth in new bookings and a positive outlook for future sales growth [1][2][3] Group 1: Earnings Performance - Accenture reported Q3 earnings of $3.13 per share, slightly below the analyst forecast of $3.15, with sales of $16.5 billion, matching expectations [1][2] - Year-over-year sales declined by 1%, while GAAP earnings decreased by 3% to $3.03 per share [2] - Operating profit margin improved by nearly 2 percentage points to 16% [2] Group 2: Future Outlook - Accenture anticipates a 2% year-over-year sales growth for the full fiscal year 2024, with an expected operating profit margin of 14.8% [3] - The company projects GAAP earnings between $11.29 and $11.44, with adjusted earnings around $11.93, slightly below the analyst forecast of $12.08 [3] Group 3: New Business and AI Growth - New bookings for the quarter increased by 22% to $21.1 billion, indicating a potential return to sales growth [2] - Generative AI new bookings reached $900 million in Q3 and $2 billion year-to-date, representing a 50% increase compared to the average of the previous two quarters [2] Group 4: Valuation Metrics - With an estimated free cash flow of around $9 billion and a market cap of $180 billion, Accenture's price-to-free-cash-flow ratio stands at 20, suggesting the stock is not expensive [3] - If Accenture can convert its 22% bookings growth into equivalent earnings growth, it could present a strong buying opportunity [3]