Accenture Wins $54M Navy Contract - Analyst Blog

Accenture plc ACN recently won a contract from the U.S. Department of Navy with an aggregate value of $53.7 million.  The government department has chosen Accenture Federal Services to support the Naval Supply Systems Command's (NAVSUP) Business Systems Center (BSC) to provide a complete spectrum of human resource and information technology IT solutions, including maintenance, integration and development support for systems, under a prime indefinite-delivery, indefinite-quantity (IDIQ) contract.  

This IDIQ contract is for one base year with four one-year extension options. As per the terms of the contract, Accenture Federal Services will support the Navy's information program and will improve the overall enterprise performance. NAVSUP BSC is a provider of IT products and services for the design, development and maintenance of information systems, with special focus on logistics, supply chain management and finance-related services for the U.S. Department of Navy and other government agencies.

Accenture will work in sync with the Navy to assess and design standard financial business processes with all major commands. This will help the Navy's Office of Financial Operations to plan, achieve and sustain audit readiness.

Also, Accenture will support the operation of the Navy Enterprise Resource Planning (ERP) system. For this, Accenture will monitor computer systems and automated business processes required for the ERP system to be effective. This will boost the U.S. Navy's ability to streamline operations across various departments efficiently, improve enterprise performance and promote mission-critical IT solutions.

A government contract at the beginning of 2014 is certainly a good start for Accenture. The company has won a series of government deals in the past. However, these contracts generally have lower margins, which could be something to worry about.

According to the immixGroup, a provider of technology products to the public sector, federal spending on IT is forecasted to grow at a CAGR of 2.3%, from $70.0 billion in 2014 to $78.5 billion in 2019. Moreover, according to Gartner, government spending on IT services is expected to increase from $1.37 billion in 2013 to $1.46 billion in 2014. This could increase the amount of deals and eventually act as a tailwind for Accenture.

In spite of the regular deal wins, competition continues to increase at a steady pace. Accenture continues to face competition from companies like Cognizant Technology Solutions CTSH and International Business Machines IBM. Additionally, significant exposure to Europe may temper its growth prospects to some extent.

Currently, Accenture has a Zacks Rank #2 (Buy). A better-ranked stock worth considering in the sector is Juniper Networks, Inc. JNPR, carrying a Zacks Rank #1 (Strong Buy).