Morgan Stanley lowers Accenture stock price target to $340 on macro concerns

Morgan Stanley reduced its price target on Accenture to $340 from $372, maintaining an Equalweight rating, while expecting management to raise the lower end of fiscal year 2025 growth guidance by 100 bps to 6-7% year-over-year on a constant currency basis. The adjustment reflects longer-duration deal conversions offsetting macroeconomic softness, though stable bookings suggest the upper end of growth guidance will remain unchanged. Concerns persist regarding Applied Intelligence and Software (AFS) funding levels, despite Accenture's advancements in AI and strategic partnerships.

Analysis

Morgan Stanley has adjusted its price target for Accenture plc (NYSE:ACN) downwards to $340.00 from $372.00, while reiterating an Equalweight rating. This revision occurs despite expectations that Accenture's management will likely raise the lower end of its fiscal year 2025 constant currency growth guidance by 100 basis points to 6-7% year-over-year, up from the previous 5-7%. The rationale for the price target cut, amidst anticipated guidance improvement, stems from a mixed near-term outlook: longer-duration deal conversions are providing a buffer against broader macroeconomic softness in technology consulting, but stable bookings are expected to keep the upper end of growth guidance unchanged. Accenture currently trades at a P/E ratio of 26x, with analyst targets ranging from $280 to $395. A key concern highlighted by Morgan Stanley involves potential vulnerabilities in Accenture’s Applied Intelligence and Software (AFS) funding levels, with specific mention of "DOGE pressure" remaining a top-of-mind issue for this segment. Concurrently, Accenture is advancing its AI capabilities, notably expanding its AI Refinery platform in Europe with sovereign features built on NVIDIA Enterprise AI to address data control, and has invested in AI-driven insurance claims firm Reserv. The company also secured a partnership with OP Financial Group to modernize Pohjola Insurance’s IT systems using cloud and AI. Leadership transitions include Ndidi Oteh's appointment as CEO of Accenture Song. In contrast to Morgan Stanley, TD Cowen maintains a Buy rating with a $336 price target, despite industry growth concerns partially surfaced by Booz Allen’s financial results.

Key Decisions for Investors

• Investors should monitor Accenture's ability to sustain growth through longer-duration deal conversions amidst persistent macroeconomic headwinds in the technology consulting sector, particularly in light of the revised, yet mixed, FY25 guidance expectations.
• Careful attention should be paid to developments within Accenture's Applied Intelligence and Software (AFS) segment, specifically regarding funding stability and the resolution of the 'DOGE pressure' concern highlighted by Morgan Stanley.
• Evaluate the potential long-term benefits of Accenture's strategic AI initiatives, such as the AI Refinery expansion and the Reserv investment, against the backdrop of current valuation, a reduced price target from Morgan Stanley, and divergent analyst ratings.
• Consider the implications of the relatively stable upper end of the growth guidance, which may suggest limitations to near-term upside despite positive momentum at the lower end of the forecast.