One surprising area of weakness for the wide-moat firm was the growth in the Health & Public Service business.
By Andrew Lange | 06-22-17 | 04:00 PM | Email Article

 Accenture  reported a solid third-quarter result with revenue and adjusted earnings coming within our expectations. The company gave an updated outlook for the full year and now assumes a less impactful foreign exchange headwind. In addition, a large U.S. pension plan settlement charge will have a $0.47 impact on the firm’s GAAP EPS but will not affect its non-GAAP EPS, the midpoint of which was modestly increased to $5.88 from $5.79. After updating our financial model and incorporating a lower long-term federal tax rate assumption, we are raising our fair value estimate to $117 from $109 while maintaining our wide economic moat rating. With shares trading in 3-star territory, we would seek a wider margin of safety before investing in the company.

Andrew Lange is an equity analyst for Morningstar.

Despite a fairly solid quarterly performance, one surprising area of weakness was the growth in the Health & Public Service (H&PS) business. Accenture noted that H&PS did not see an anticipated uptick in activity in North America, citing slower-than-expected decision-making and that the initiations of new projects were being delayed due to uncertainty surrounding healthcare legislation and state and federal budgets. We expect this impact to last through the end of the fiscal year and will continue to monitor the legislative action or inaction within the U.S.

For the quarter, revenue rose 5% year over year to $8.87 billion (increased 7% in constant currency). Growth was driven by Operations, which grew double-digits for the sixth consecutive quarter, and Application Services, which posted high-single-digit growth. Meanwhile, Strategy and Consulting Services grew in the low-single-digits.

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