Accenture PLC (NYSE: ACN) is a widely followed company, but much of the investing public may have overlooked a drop of almost $15 in the shares from peak to trough over the past month or so. Now we have an upgrade to Buy from Hold at the independent research firm Argus.

Tuesday’s upgrade by Argus was based on a compelling valuation and bottom-line growth story. The firm raised its near-term rating on valuation, as well as superior growth prospects to industry peers. The firm liked that Accenture is executing its growth strategy while maintaining operational discipline.

Argus established a 12-month target price of $108, along with its Buy rating of Accenture’s common shares. That compares to a consensus analyst price target of almost $106.00, a street-high analyst price target of $119.00 and a 52-week trading range of $73.98 to $105.37. Still, Argus hinted of an even higher valuation being possible ahead, with somewhat limited downside.

Also noted in the Argus report was that Accenture delivered on its three goals of durable revenue growth, operating margin expansion and strong free cash flow generation. Argus further believes that Accenture warrants a premium valuation to peers due to solid revenue growth, strong new orders, strong cash flow trends and increasing profitability.

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The Argus team said:

Accenture, the consulting and outsourcing leader, posted 0.4% revenue growth on a U.S. GAAP basis in its fiscal third quarter; underlying top-line growth was 10% in local currency. Accenture is executing its growth strategy while maintaining operational discipline. During fiscal 3Q15, the company delivered on its three goals of durable revenue growth, operating margin expansion, and strong free cash flow generation. Accenture continues to trade at premiums to its historical multiples and to market multiples, but those premiums have contracted. We believe Accenture warrants a premium valuation, given solid growth in revenue in local currency and in new orders, strong cash trends, and increasing profitability.

Argus noted that Accenture shares are up 5% year to date, compared to a 13% decline for the peer group in 2015 in its coverage universe. Accenture has now seen its third consecutive quarter of double-digit local-currency growth, and Argus thinks this suggests that Accenture is gaining in market share from rivals. That quarterly report also was above the high end of management’s prior guidance.

Argus further said:

Accenture appears to be delivering on its three goals of durable revenue growth, operating margin expansion, and strong free cash flow generation. Local currency revenue growth of 10% in the third quarter (of 2015) marked the third consecutive quarter of double-digit local-currency growth and suggests that Accenture is gaining share from rivals. … Accenture in the third quarter of 2015 generated $1.3 billion in free cash flow and remains on track for free cash flow in the $3.4 billion to $3.7 billion range for all of fiscal 2015. During its third quarter, Accenture had 12 clients with bookings in excess of $100 million, bringing the year-to-date total for such clients to 35. Accenture’s breadth of services, its unmatched number of verticals served, and the reach of its global delivery network have enabled the company to establish “unique relationships” with top-tier companies among its global 2,000 customer base.

Accenture is valued at 19.8 times the Argus estimate for fiscal 2015 earnings per share, and it is valued at 17.9 times its fiscal 2016 estimates.

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The firm noted that Argus has a downside valuation around $80 and an upside valuation in the $110 to $120 range. The firm concluded:

On all measures of historical comparable valuation, we calculate a value of $80 per share, below current levels but now in a rising trend. Our more forward-looking discounted free cash flow calculates a value in the $120 range, now in a rising trend after declining during the second half of fiscal 2014 and early fiscal 2015. Reflecting margin expansion and strengthening cash flow generation, our calculated blended value for Accenture is now in the $110s. Appreciation to our calculated fair value, along with the 2.2% estimated annual dividend yield, implies a risk-adjusted total exceeding 15%. On that basis, we are raising our
intermediate-term rating on Accenture to Buy from Hold.

Accenture shares were last seen trading up 2.3% at $96.63 in mid-afternoon trading.

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