Accenture Shares Plunge Amid U.S. Federal Spending Cuts

Accenture (NYSE: ACN) shares took a nosedive on Thursday, falling 8% by 10 a.m. ET, despite exceeding expectations in its fiscal second-quarter earnings report for 2025. The professional services giant reported earnings per share (EPS) of $2.82 on revenue of $16.7 billion, surpassing analyst forecasts of $2.81 per share on $16.6 billion in sales. However, the market's reaction was driven by CEO Julie Sweet's warning about the impact of government spending cuts on the company's sales and revenue.



The Trump administration's focus on government efficiency, led by tesla (TSLA) CEO Elon Musk's Department of Government Efficiency, has slowed new procurement actions, negatively impacting Accenture's sales and revenue. Sweet noted that while the company believes its work for federal clients is mission-critical, ongoing uncertainty as the government's priorities evolve could continue to affect Accenture's performance.

The market's reaction to Accenture's earnings report highlights the sensitivity of investors to any potential headwinds, even when a company exceeds earnings expectations. Accenture's stock has been under pressure for the past year, down nearly 15% over the past year, and the latest drop has led the S&P 500 decliners.



Despite the market's reaction, Accenture's earnings report contained several positive takeaways. The company reported broad-based revenue growth across geographic markets, industry groups, and types of work. Accenture's operating profit margin expanded 50 basis points to 13.5%, and free cash flow for the quarter came in at a strong $2.7 billion, up 35% from last year's fiscal Q2.

However, the company's guidance for the full year was less than inspiring. accenture narrowed its revenue growth guidance to 5% to 7% in local currency, and its earnings per share guidance to $12.55 to $12.79. While the company raised the bottom of its earnings target range by $0.12 per share, the midpoint of guidance was about a nickel less than the $12.72 per share that Wall Street had forecast for this year.

The market's reaction to Accenture's earnings report raises questions about the company's valuation. At $203 billion in market capitalization, Accenture stock costs more than 20 times trailing free cash flow and more than 26 times trailing earnings. Yet long-term earnings growth is forecast at only about 9% annually, and even short-term, 2025 growth will be only 11%.

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In conclusion, Accenture's earnings report contained several positive takeaways, but the market's reaction to the company's guidance and CEO's warning about government spending cuts highlights the sensitivity of investors to any potential headwinds. Investors may want to consider other stocks that are undervalued and have a higher potential for growth.

Ask Aime: Why is Accenture's stock dropping despite exceeding earnings expectations?