Topline
Consulting giant Accenture indicated the Elon Musk-led initiative to cull federal government spending may hurt the company’s performance, tanking its share price following an otherwise in-line quarterly earnings report.
Key Facts
On the Thursday morning earnings call, Accenture CEO Julie Sweet said in her opening statement the “new administration has a clear goal to run the federal government more efficiently,” noting new government business acquisition has “slowed, which is negatively impacting our sales and revenue,” referring to Musk’s Department of Government Efficiency specifically honing in on contracts between the government and consultants like Accenture and rivals Booz Allen Hamilton and Deloitte.
Revenue from work for the federal government accounted for 8% of Accenture’s $65 billion in revenue globally and 16% of its Americas revenue during its most recent fiscal year, Sweet noted.
Accenture’s revenue and earnings for the quarter ending last month and its revenue forecast for the ongoing period all came within 0.5% of consensus analyst forecasts, according to FactSet, but its stock tanked.
Accenture stock fell 7% to $301 Thursday, registering its lowest share price since July as it lost close to $15 billion in market capitalization.
Shares of other public companies with consulting contracts reportedly targeted by DOGE also slumped, as Booz Allen Hamilton and IBM stocks fell 8% and 4%, respectively.
Surprising Fact
Thursday was Accenture stock’s steepest daily loss since last March and its fifth-worst day of the last decade.
Chief Critic
“While DOGE and related cost initiatives may impact Federal IT investments near-term, we do not see any change in the secular need for the US government to modernize and use technology to increase efficiency,” Stifel analyst David Grossman wrote in a Thursday note to clients. Grossman maintained his buy rating for Accenture stock, but trimmed his price target from $380 to $355.
Key Background
Shares of Accenture are down nearly 15% year-to-date, ranking among the S&P 500’s worst 60 performers. Accenture has about 10,000 employees in its unit dedicated to federal government work, according to Bloomberg. Government workers were required last week to review the need for contracts with Accenture and nine of the other highest-paid government consultants, multiple outlets reported. Accenture’s federal government segment grew at twice as fast a pace as the company’s broader business from 2019 to 2024, according to Mizuho analysts Dan Dolev and Sean Kennedy. About half of Accenture’s revenue from the U.S. government comes from application services, according to Mizuho.