Big Upside for Intuit Stock?
After an outstanding tax season and surprisingly impressive earnings last quarter, Intuit Inc. (NASDAQ:INTU) stock is the financial software name you’ll want to watch.
As a financial software leader, Intuit has been on a non-stop upward trajectory. Its share price continues to rise while its sales performance consistently blows away those of its competitors. The company is a financial management, accounting, and tax software provider with a wide range of popular products including “Turbo Tax,” “Quicken,” “Mint,” and “QuickBooks.” Intuit stock has gained 20.61% year-to-date and jumped 9.51% in the last 30 days.
After such a big run, some investors might think the best days for this name are behind it. I’m not so sure.
Here are three reasons to be bullish on Intuit stock:
1. Tax Prep Market Share
In the tax preparation space, Intuit’s Turbo Tax software remains the obvious market leader. Even the company’s largest competitor, H & R Block Inc (NYSE:HRB), admits it—going as far as praising Intuit’s great year: “TurboTax Absolute Zero promotion won the tax season and likely took share from all major branded competitors,” said HRB’s president and chief executive officer, Bill Cobb. (Source: “Edited Transcript of HRB earnings conference call,” Yahoo! Finance, June 10, 2016.)
Cobb showed subtle signs of panic regarding his company’s diminishing userbase by telling shareholders that it cannot continue along the user trajectory it has experienced as of late.
“Arresting the client decline, and ultimately growing clients is our number one objective,” he stated. (Source: Ibid.)
While H & R Block has been losing clients, Intuit has been growing its overall userbase, both in its desktop and cloud-based platforms. H & R Block’s global tax preparation client count fell 4.1%. During the same quarter, Inuit boosted its own market share in that space, rising three points higher to about 65%. (Source: “H&R Block Announces Fiscal 2016 Results and Dividend Increase,” H & R Block Inc, June 10, 2016.)
Intuit certainly has an edge over traditional brick-and-mortar, assisted tax preparation companies, especially with its increasingly cloud-based product offerings. As for its DIY competitors, none of them come close to Intuit’s market share.
Outside of its tax software, Intuit is also rapidly growing its “QuickBooks Online” subscriber base—rising 45% in Q3. The boost in paid memberships allowed the company to surpass its previous expectations. Intuit is on track to hit its subscription goals during the next fiscal year. On top of that, its revenue per user is growing better than the company had predicted. (Source: “Edited Transcript of INTU earnings conference call,” Yahoo! Finance, May 25, 2016.)
2. Continued Adaptation and Modernization
The company is in the midst of a three-year plan to completely transition away from desktop-based software to a fully cloud-integrated portfolio. The shift is to be completed in 2017. The change will help the company to better compete with industry rivals like FreshBooks, which is an exclusively cloud-enabled platform. Intuit estimates that 73% of its license revenue will be from cloud-based subscriptions in fiscal 2017.
Inuit is also in a position to grow parallel to our constantly evolving workforce habits. Earlier this year, the company launched “QuickBooks Online Self-Employed,” a new program that caters to the rapidly growing population of freelance workers and independent contractors. Intuit estimates that 43% of the workforce will be self-employed by 2020. (Source: “Intuit Launches QuickBooks Online Self-Employed,” Small Business Computing.com, January 20, 2016.)
The company managed to snap up Google’s former vice president of global brand solutions and innovations, Lucas Watson. When Watson joins the team on August 22, he will head Intuit’s global sales and marketing organization. The clever HR decision bodes well for the company’s upcoming marketing efforts, although its products already appear easy to sell. (Source: “Intuit Names Google VP Lucas Watson as Chief Marketing and Sales Officer,” Intuit Investor Relations, July 12, 2016.)
3. Consistently Outstanding Earnings
The financial software company’s earnings have smashed consensus estimates for four consecutive quarters and Intuit is poised to do it again when it releases its fourth-quarter results around August 18, 2016.
On May 24, Inuit posted better-than-expected financial results for its fiscal third quarter, beating Wall Street predictions on both total revenue and earnings per share (EPS). The company reported adjusted EPS of $3.43 per share on revenue of $2.304 billion, while analysts had called for EPS of $3.21 and $2.294 billion in revenue. (Source: “Intuit Posts Strong Third-quarter Results; Raises Full-year Guidance,” Intuit Investor Relations, May 24, 2016.)
Thanks to the company’s remarkable Q3, it raised its Q4 and full-year guidance. For the three-month period ending July 31, Intuit is expecting to report revenue of $720 million to $740 million. For the full year, the company is anticipating revenue to land somewhere between $4.66 billion and $4.68 billion, which is 11%–12% higher than the previous year. Analysts are expecting $4.66 billion.
Intuit is set to report $6.0 billion in annual sales by 2017—up 43% when compared to fiscal 2015. The company has successfully grown its revenue every year since 2011, with the exception of fiscal 2015. Compared to other recent quarters, 2015 was most likely an anomaly as it was the first year of its three-year cloud transition strategy.
The Bottom Line on Intuit Stock
The Intuit stock price is on the rise and the software giant is not showing signs of a slowdown anytime soon. Not only does the company destroy its competitors in sales and membership growth, but its stock price has also performed remarkably well compared to its industry rivals. Intuit’s forward-thinking management team and effective, high-growth strategy position INTU stock to continue along the positive slope it has enjoyed over the last year.