How Accenture Keeps Its Moat

Julie Bhusal Sharma: We’ve increased our fair value estimate for wide-moat Accenture to $187 per share from $148 per share. While this still leaves the company moderately overvalued, we are confident that Accenture will be able to maintain its wide moat rating, which we believe to be founded on its intangible assets and switching costs.

Accenture is one of the world’s largest IT services companies, serving 80% of the top 500 companies globally. As consultants, we think Accenture benefits from the uncertainty that comes with the ambiguous outcomes on which consulting projects seek to deliver. We think that large enterprises have extreme risk aversion, which leads enterprises to rely significantly on reputation when choosing a consultant. In our view, Accenture’s strong reputation is backed by its strategic and technical expertise gained from years of working with extremely large and complex companies. We think that familiarity with this expertise is a significant source of resistance to switching from Accenture’s consulting or outsourcing services. While Accenture does not boast abnormal operating margins for the IT services industry, it achieves significantly greater returns on capital from its scale. After all, there are only so many blueprints and software partners an IT services company needs to solve enterprise problems, which allows Accenture to spread these blueprints across its larger customer base.

All in all, if Accenture stock were to endure a substantial haircut, we think Accenture would be an attractive buy given the strength of its intangible assets and switching costs.