Accenture’s outlook for government outsourcing may be a sign of things to come

• Accenture, Booz Allen Hamilton stocks slightly recover after major sell-off on Thursday.
• Accenture's fiscal Q2 earnings showed a deterioration in bookings.
• Trump advisor Elon Musk has been making cuts to government workers and contracts.
• Trump helps stocks on Friday by saying he will be "flexible" with reciprocal tariffs.

 

While the market has been in general correction mode ever since the Trump administration announced its plan to slap tariffs on most of its largest trade partners back in January, the outsourcing sector has sold off worse than other parts of the stock market.

Accenture (ACN), one of the largest in the outsourcing game, shed 7.3% on Thursday after management presented a sour outlook on prospects for the year ahead. CEO Julie Sweet said on the company’s earnings call that Elon Musk’s Department of Government Efficiency (DOGE) would place downward pressure on the company’s government contracting business.

US stock indices were largely unified in a general pullback of near 0.7% at lunchtime on Friday but recovered somewhat in the afternoon when US President Donald Trump said there might be “flexibility” in his approach to the global reciprocal tariffs that his administration is developing.

Accenture stock news

Accenture stock advanced about 1% on Friday following Trump’s turn toward pragmatism, but the general consensus of further tariffs and further cost-cutting this spring and summer threaten to upend the US economy and the equity market in turn.

Accenture made about 8% of its revenue from consulting contracts for the US federal government in 2024. But its Accenture Federal Services segment is largely uncertain after the government’s General Services Administration recently advised all federal agencies to review their top 10 consulting contracts for possible elimination.

Tellingly, new bookings in the recently-ended second fiscal quarter hit $20.3 billion, down 3%.

Sweet said this has delayed or ended some contracts managed by Accenture Federal Services. “We anticipate ongoing uncertainty as the government's priorities evolve and these assessments unfold,” Sweet told shareholders and analysts on Thursday’s earnings call. 

Still, Accenture expects its fiscal third-quarter revenue to arrive between $16.9 billion and $17.5 billion and for fiscal 2025 revenue to grow between 5% and 7%. 

Negativity toward the outsourcing and consulting industries picked up steam after Defense Secretary Pete Hegseth canceled some $580 million in contracts with the Department of Defense on Thursday. Approximately $30 million of that figure came from canceled contracts from Gartner (IT) and McKinsey & Company.

The outsourcing firm expected to be most affected by the Trump administration’s cuts is Booz Allen Hamilton (BAH) since the vast majority of its contracts involve the government. BAH shares declined 8.1% on Thursday.

While the stock market has largely sensed a recovery this week, Cantor Fitzgerald is telling clients not to fall for the false optimism. 

“We expect a weak 1Q earnings season with 2025 estimates moving lower throughout the reporting period,” reads the recent client note. “We expect the hard data we get in April and May will show deterioration as the business uncertainty, low consumer confidence, higher prices, negative wealth effect filter into actual economic decisions.”

Accenture stock chart

Accenture stock is doing its best to stay above the $300 psychological level, but anyone can see that this support is likely to give way.

The more obvious point of support is the June 2024 pullback at $280. That price level helped to consolidate the share price in four or five sessions that month.

A break there could see ACN stock sink to the $240 to $260 range, but that region hasn't been tested in nearly two years. If other segments of Accenture's business make up for weakness in federal consulting, then $280 is the only focal point necessary for those hoping for a better entry.

ACN daily stock chart