Intuit (INTU) provides cloud-based accounting and tax preparation software solutions. The company’s products offer financial management, compliance, and services for consumers, small businesses, self-employed workers, and accounting professionals worldwide.
Intuit’s most prevalent platforms comprise QuickBooks, TurboTax, Mint, and TSheets. Cumulatively they help more than 100 million customers comply with their financial obligations.
What I appreciate the most about Intuit is that it has an unparalleled moat. The company’s solutions are the go-to place for individuals and organizations, with hardly any meaningful competition threatening its cash flows. Further, Intuit’s revenues are ultimately recession-proof, as demonstrated by the robust sales growth regardless of the difficulties emerging from COVID-19.
While nothing is foolproof in life, it is safe to state that taxes won’t be disappearing. Intuit has closed more than 37 acquisitions over the previous several years to secure its dominance in the industry. With no other company providing a comprehensive enough suite of tax-related products, and individuals bound to pay their inescapable taxes, the business takes pleasure in a predictable and recurring stream of cash flows.
To highlight the strength of Intuit’s revenues, even during 2007-2008, when many businesses shut down, the company grew revenues by around 7%.
In my view, the company is one of the most prominent industry leaders out there, likely to keep producing growing and resilient results for years to come. However, investors need to be wary of the stock’s premium valuation, limiting future total returns should potential valuation multiple compression occur. For this reason, I am neutral on the stock.
Latest and Upcoming Results
Intuit’s Q1 2021 results came in very strong, with the company delivering another prosperous quarter. Specifically, the company grew its “Small business and Self-Employed Group” revenues by 22% and its Online Ecosystem revenues by 36%.
QuickBooks Online Accounting revenues increased 32% versus the prior-year period as well. Consequently, total revenues grew 52% to $2.01 billion, with growth powered mostly by customer growth, mix shift, and higher effective prices.
Adjusted EPS came in at $1.53 for the quarter, 63% higher year-over-year, matching the top line’s outstanding performance. Following a better-than-expected Q1, management boosted its full-year outlook, expecting full-year 2022 revenues to land between $12.16-12.3 billion, implying a ~27% growth rate year-over-year, and non-GAAP EPS to land between $11.48 to $11.64, suggesting a growth rate of approximately 18% to 20% compared to the prior guidance growth rate of 13% to 16%.
For its upcoming Q2 2022 results, Wall Streets expects explosive revenue growth of 72.8%, which, while sounding demanding, should be rather achievable, taking into account the company’s recent acquisitions and pricing hikes.
Is the Stock Expensive?
Based on the midpoint of management’s EPS range outlook, full-year 2022 EPS should come out at around $11.56. However, note that the company tends to beat and raise its provided guidance, leading to stronger results.
In any case, at the stock’s present price levels and the midpoint of management’s guidance, Intuit is currently trading at a (forward) P/E of 45.7. This is despite the stock correcting from its 52-week highs of ~$716 to ~$528 as of writing this article.
In my view, this is a steep multiple, considering that Intuit’s growth is likely to converge towards the mid-teens in the medium term. However, I believe that investors will continue to pay a premium for the stock due to its unique qualities and distinctive moat, which few companies can match.
Wall Street’s Take
Turning to Wall Street, Intuit has a Strong Buy consensus rating based on 18 Buys assigned in the past three months. At $740.38, the average Intuit price target implies 40.3% upside potential over the next 12 months.
Conclusion
Few companies can offer investors such resilience and cash flow certainty as Intuit. I believe the company is poised to keep expanding its offerings and consequently its revenues and net income. However, I believe that the current valuation could potentially limit the stock’s upside going forward. For this reason, I am neutral on Intuit for the time being.
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